[Senate Hearing 111-521]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 111-521

                        THE ROLE OF AGRICULTURE
                         AND FORESTRY IN GLOBAL
                          WARMING LEGISLATION

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

                                HEARING

                               before the

                       COMMITTEE ON AGRICULTURE,
                        NUTRITION, AND FORESTRY

                          UNITED STATES SENATE


                     ONE HUNDRED ELEVENTH CONGRESS

                             FIRST SESSION


                               __________

                             JULY 22, 2009

                               __________

                       Printed for the use of the
           Committee on Agriculture, Nutrition, and Forestry


  Available via the World Wide Web: http://www.agriculture.senate.gov




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           COMMITTEE ON AGRICULTURE, NUTRITION, AND FORESTRY



                       TOM HARKIN, Iowa, Chairman

PATRICK J. LEAHY, Vermont            SAXBY CHAMBLISS, Georgia
KENT CONRAD, North Dakota            RICHARD G. LUGAR, Indiana
MAX BAUCUS, Montana                  THAD COCHRAN, Mississippi
BLANCHE L. LINCOLN, Arkansas         MITCH McCONNELL, Kentucky
DEBBIE A. STABENOW, Michigan         PAT ROBERTS, Kansas
E. BENJAMIN NELSON, Nebraska         MIKE JOHANNS, Nebraska
SHERROD BROWN, Ohio                  CHARLES E. GRASSLEY, Iowa
ROBERT P. CASEY, Jr., Pennsylvania   JOHN THUNE, South Dakota
AMY KLOBUCHAR, Minnesota
KIRSTEN GILLIBRAND, New York
MICHAEL BENNET, Colorado

                Mark Halverson, Majority Staff Director

                    Jessica L. Williams, Chief Clerk

            Martha Scott Poindexter, Minority Staff Director

                 Vernie Hubert, Minority Chief Counsel

                                  (ii)









                            C O N T E N T S

                              ----------                              
                                                                   Page

Hearing(s):

The Role of Agriculture and Forestry in Global Warming 
  Legislation....................................................     1

                              ----------                              

                        Wednesday, July 22, 2009
                    STATEMENTS PRESENTED BY SENATORS

Harkin, Hon. Tom, U.S. Senator from the State of Iowa, Chairman, 
  Committee on Agriculture, Nutrition, and Forestry..............     1
Chambliss, Hon. Saxby, U.S. Senator from the State of Georgia....     3
Grassley, Hon. Charles E., U.S. Senator from the State of Iowa...     5

                                Panel I

Grumet, Jason, Founder and President, Bipartisan Policy Center...    13
Johnson, Roger, President, National Farmers Union................     6
Pierce, Jo, Family Tree Farmer on behalf of the Forest Climate 
  Working Group..................................................    11
Stallman, Bob, President, American Farm Bureau Federation........     8

                                Panel II

Holdren, John P., Ph.D., Director, White House Office of Science 
  and Technology.................................................    46
Jackson, Lisa, Administrator, U.S. Environmental Protection 
  Agency.........................................................    44
Vilsack, Hon. Tom, Secretary of Agriculture, U.S. Department of 
  Agriculture....................................................    41
                              ----------                              

                                APPENDIX

Prepared Statements:
    Grumet, Jason................................................    74
    Holdren, John P..............................................    79
    Jackson, Lisa................................................    88
    Johnson, Roger...............................................    90
    Pierce, Jo...................................................   100
    Stallman, Bob................................................   106
    Vilsack, Hon. Tom............................................   119
Document(s) Submitted for the Record:
Vilsack, Hon. Tom:
    ``A preliminary Analysis of the Effects of HR 2454 on U.S. 
      Agriculture'', Office of the Chief Economist...............   124
Grumet, Jason:
    ``Forging The Climate Consensus--Managing Economic Risk in a 
      Greenhouse Gas Cap-and Trade Program'', National Commission 
      on Energy Policy...........................................   137
    CountryMark, prepared statement..............................   148
    E.I. DuPont de Nemours and Company, Inc., prepared statement.   154
    International Biochar Initiative, prepared statement.........   159
    John Deere, prepared statement...............................   163
    National Alliance of Forest Owners, prepared statement.......   170
    National Cattlemen's Beef Association, prepared statement....   180
    National Cotton Council, prepared statement..................   184
    National Oilseed Processors Association, prepared statement..   186
    PG&E Corporation, prepared statement.........................   196
    SynGest, prepared statement..................................   199
    The Dow Chemical Company, prepared statement.................   200
    The Fertilizer Institute, prepared statement.................   206
    The Nature Conservancy, prepared statement...................   211
    Various Organizations, prepared statement....................   215
Question and Answer:
Harkin, Hon. Tom:
    Written questions for Hon. Tom Vilsack.......................   218
    Written questions for Joe Pierce.............................   288
    Written questions for Lisa Jackson...........................   266
    Written questions for John Holdren...........................   260
    Written questions for Jason Grumet...........................   255
Chambliss, Hon. Saxby:
    Written questions for Hon. Tom Vilsack.......................   221
    Written questions for Lisa Jackson...........................   266
Brown, Hon. Sherrod:
    Written questions for Hon. Tom Vilsack.......................   230
Gillibrand, Hon. Kirsten E.:
    Written questions for Hon. Tom Vilsack.......................   249
    Written questions for Lisa Jackson...........................   281
Grassley, Hon. Charles E.:
    Written questions for Roger Johnson..........................   284
    Written questions for Bob Stallman...........................   294
    Written questions for Hon. Tom Vilsack.......................   243
    Written questions for Lisa Jackson...........................   273
    Written questions for Jason Grumet...........................   259
    Written questions for John Holdren...........................   265
Johanns, Hon. Mike:
    Written questions for Hon. Tom Vilsack.......................   231
    Written questions for Lisa Jackson...........................   269
Leahy, Hon. Patrick J.:
    Written questions for Hon. Tom Vilsack.......................   223
    Written questions for John Holdren...........................   262
    Written questions for Lisa Jackson...........................   268
Lincoln, Hon. Blanche, L.:
    Written questions for Hon. Tom Vilsack.......................   228
    Written questions for Joe Pierce.............................   290
    Written questions for Jason Grumet...........................   258
    Written questions for Roger Johnson..........................   283
Roberts, Hon. Pat:
    Written questions for Hon. Tom Vilsack.......................   230
    Written questions for Lisa Jackson...........................   269
Thune, Hon. John:
    Written questions for Hon. Tom Vilsack.......................   242
    Written questions for Lisa Jackson...........................   278
Grumet, Jason:
    Written response to questions from Hon. Tom Harkin...........   255
    Written response to questions from Hon. Charles E. Grassley..   259
    Written response to questions from Hon. Blanche L. Lincoln...   258
Holdren, John P.:
    Written response to questions from Hon. Tom Harkin...........   260
    Written response to questions from Hon. Charles E. Grassley..   265
    Written response to questions from Hon. Patrick J. Leahy.....   263
Jackson, Lisa:
    Written response to questions from Hon. Tom Harkin...........   266
    Written response to questions from Hon. Saxby Chambliss......   267
    Written response to questions from Hon. Kirsten E. Gillibrand   281
    Written response to questions from Hon. Charles E. Grassley..   274
    Written response to questions from Hon. Mike Johanns.........   270
    Written response to questions from Hon. Patrick J. Leahy.....   268
    Written response to questions from Hon. Pat Roberts..........   269
    Written response to questions from Hon. John Thune...........   278
Johnson, Roger:
    Written response to questions from Hon. Charles E. Grassley..   284
    Written response to questions from Hon. Blanche L. Lincoln...   283
Pierce, Jo:
    Written response to questions from Hon. Tom Harkin...........   288
    Written response to questions from Hon. Blanche L. Lincoln...   290
    Written response to questions from Hon. Charles E. Grassley..   291
Stallman, Bob:
    Written response to questions from Hon. Blanche L. Lincoln...   293
    Written response to questions from Hon. Charles E. Grassley..   294
Vilsack, Hon. Tom:
    Written response to questions from Hon. Tom Harkin...........   218
    Written response to questions from Hon. Saxby Chambliss......   221
    Written response to questions from Hon. Sherrod Brown........   230
    Written response to questions from Hon. Kirsten E. Gillibrand   249
    Written response to questions from Hon. Charles E. Grassley..   243
    Written response to questions from Hon. Mike Johanns.........   232
    Written response to questions from Hon. Patrick J. Leahy.....   223
    Written response to questions from Hon. Blanche L. Lincoln...   228
    Written response to questions from Hon. Pat Roberts..........   231
    Written response to questions from Hon. John Thune...........   242


 
                        THE ROLE OF AGRICULTURE
                         AND FORESTRY IN GLOBAL
                          WARMING LEGISLATION

                              ----------                              


                        Wednesday, July 22, 2009

                                       U.S. Senate,
          Committee on Agriculture, Nutrition and Forestry,
                                                     Washington, DC
    The Committee met, pursuant to notice, at 10:03 a.m., in 
room 325, Russell Senate Office Building, Hon. Tom Harkin, 
Chairman of the Committee, presiding.
    Present: Senators Harkin, Leahy, Lincoln, Stabenow, Nelson, 
Brown, Casey, Klobuchar, Bennet, Chambliss, Lugar, Cochran, 
Roberts, Johanns, Grassley, and Thune.

 STATEMENT OF HON. TOM HARKIN, U.S. SENATOR FROM THE STATE OF 
   IOWA, CHAIRMAN, COMMITTEE ON AGRICULTURE, NUTRITION, AND 
                            FORESTRY

    Chairman Harkin. Good morning. The Senate Committee on 
Agriculture, Nutrition and Forestry will come to order.
    I welcome this hearing to examine the critical challenges 
in energy and global warming and the pending proposals for 
addressing them. We have two strong panels of witnesses, and I 
look forward to their testimony. We will have this first panel 
this morning. Then, we have to take a break, and, because of 
the necessity of us being on the Senate floor for a 
constitutional issue at 2, this Committee will resume its 
sitting with Secretary Vilsack and Administrator Jackson and 
others this afternoon at 2:30.
    For decades now, we have known that our American way of 
buying and consuming energy is not only unsustainable but 
dangerous to our future. Our heavy reliance on fossil fuels, 
much of it imported, is a threat to our energy, economic and 
national security.
    In April 1977, when I was a second term member of the 
House, President Carter called for a new course in energy 
policy because he believed our very strength and future as a 
Nation were in peril. He called the task the moral equivalent 
of war. That speech was a grim and sober one, though remarkably 
prescient. Yet, just a few years later, the warning was largely 
discarded and disregarded.
    Today, our energy situation is even more precarious. We 
import about 70 percent of the oil we use, much of that from 
nations that are unfriendly or politically unstable or both. 
Repeated oil price shocks, topping at over $140 a barrel last 
summer, are a drumbeat driving home our vulnerability. Our 
extraction and use of coal permanently alters landscapes and 
pollutes too many of our lakes and streams.
    We now know that our reliance on fossil fuels was in fact 
more damaging than what we had realized. The concentration of 
carbon dioxide and other greenhouse gases in the atmosphere has 
been rising markedly over the course of the Industrial Age, 
primarily from our use of fossil fuels, to the point that the 
climate and weather upon which human civilization relies are 
dramatically changing and will change far more rapidly if we do 
not act.
    This chart here clearly shows that something is happening. 
This line here is the amount of atmospheric CO2 concentration 
globally.
    These bars show the temperatures, the mean temperatures 
globally. The 10 warmest years on record all occurred in the 
past 12 years.
    We see the CO2 concentration going up at a steeper slope 
all the time, up to about 2000, and has gone up even more since 
2000.
    So we know that something drastic is happening out there 
and to do nothing and to ignore it is, I do not think, an 
option. So we have to do something.
    I think the challenge ahead of us, if we are to honor our 
responsibility to future generations, is a challenge that we 
cannot sidestep. Fortunately, there are good reasons to be 
hopeful.
    We need to drastically increase the efficiency throughout 
our energy economy, something that we have not done very well 
in the past because energy was so cheap and plentiful. We need 
to accelerate the transition from fossil fuels to energy 
derived from domestic renewable energy resources.
    Now agriculture and forestry can play a central role in 
this energy transition and can earn economic rewards for doing 
so. They provide feedstocks for renewable, carbon-recycling 
bioenergy. Farms and ranches also provide ideal sites for wind 
power and solar systems. Thus, our agriculture and forestry 
lands are the resource basis for a new energy economy.
    Farms, ranches and forests can also help curb greenhouse 
gases in the atmosphere. Right now, crops, trees and pastures 
absorb and store about 12 percent of the U.S. annual production 
of carbon dioxide. According to EPA, that figure could reach 20 
percent through changing agronomic and forestry practices. 
Increasing the storage of carbon in agriculture and forestry 
operations can earn income for producers while reducing the 
economic cost of cutting greenhouse gas emissions in other 
industries.
    Now, with good reason, we hear a lot of concern expressed 
about projected costs to consumers, farmers, ranchers and other 
businesses from proposed energy and global warming legislation. 
I share those concerns, and that is why I believe we must do 
our best to analyze costs and find the most economical, common-
sense ways to achieve critically important results of energy 
independence and reduction of greenhouse gas emissions.
    I am convinced that this energy transformation holds the 
key not only to economic recovery today but to major job growth 
and economic development for decades to come. The history of 
American agriculture is a history filled with stories of 
successfully meeting and overcoming one challenge after 
another. I believe that American agriculture is up to this 
challenge, that we can meet this, and we can overcome it, and 
we can provide income and make sure that agriculture has a seat 
at the table and is not shunted aside in this debate on 
reducing greenhouse gas emissions.
    Chairman Harkin. With that, I will yield to Senator 
Chambliss.

STATEMENT OF HON. SAXBY CHAMBLISS, U.S. SENATOR FROM THE STATE 
                           OF GEORGIA

    Senator Chambliss. Mr. Chairman, thank you very much for 
holding this hearing today. Climate change and the energy 
security of our Country are two very important issues facing 
our Nation, and I thank our witnesses for coming forward today 
and letting us have a chance to dialog and presenting their 
ideas.
    I am very concerned about the effect the House-passed 
American Clean Energy and Security Act and the cap and trade 
program it envisions will have on agriculture producers, forest 
landowners and residents in rural parts of the Country. No 
matter how you look at that bill, it appears to me it imposes 
costs that will far outweigh the near-term and long-term 
benefits. The balance between the near and long-term costs and 
benefits will be of foremost importance to members of this 
Committee. Agriculture is an energy-intensive industry and, 
make no mistake, the chief purpose of the Waxman-Markey and the 
Boxer bills is to raise the price of energy.
    I say that again. The purpose of the House and Senate 
climate change bills is to raise the price of energy, and that 
is a pretty irrefutable fact.
    I have asked USDA and Texas A&M University to conduct 
economic analyses of the bill with special attention to the 
effects that at the farm gate level as well as to consumers. 
What we have seen of these preliminary results is that no farm 
will escape the effect of this bill.
    According to Farm Bureau--and President Stallman is here 
with us today, and he can confirm this, I think--that by the 
time this bill is fully implemented, farm income will drop $5 
billion compared to the baseline. According to the National 
Cotton Council, cotton producers will see $300 million to $400 
million in increased production cost. Rice producers will see 
their costs increase $80 to $150 per acre. Again, Farm Bureau 
estimates corn and soybean farmers will see their costs 
increase over $20 per acre by 2020.
    With respect to cotton, our two primary competitors in the 
world market today are China and India, and all of us are 
acutely aware of the response that China and India have given 
recently to Secretary Clinton with respect to the proposal of 
their participation in the climate change issue. They basically 
have said go stuff it, and we are going to be putting our 
cotton farmers in particular at an unfair disadvantage in the 
world market with respect to competing with countries like 
India and China who are going to pay absolutely no attention to 
the issue.
    Equally concerning is what a climate change bill will do to 
cropping patterns in the United States. According to the United 
Nations, the population of the globe will increase from 6.5 
billion today to 9 billion by 2050. According to the 
Environmental Protection Agency, the Waxman-Markey bill will 
take 40 million acres of productive farm and pasture land out 
of production. According to USDA, total cropland in the United 
States totals 405 million acres. So I find it puzzling why we 
want to take 10 percent of our cropland out of production when 
the statistics indicate that we will need every available acre 
of arable land to feed a hungry world.
    For what? Possibly lowering global average temperatures by 
0.195 degrees Celsius by 2100 if the United States is the only 
Country to act. This is not good policy. There has to be a 
better way.
    Since the cap and trade program will undoubtedly raise 
production costs for farmers and ranchers, the offset 
provisions in the House bill are a key issue for agriculture 
and forestry, but there are still many questions to be 
answered. For example, if Congress creates an offsets program, 
there will be some producers who are able to benefit from it, 
but there will also be many who are not able to benefit from 
it.
    If the greatest potential for sequestration is planting 
trees, how much opportunity is there for your average producers 
for provide offsets?
    How much land is likely to be taken out of production to 
plant trees and let land lay fallow?
    What does this mean for livestock production and food 
security?
    Like most of my Senate colleagues, I want to support a bill 
that provides greater energy security for Americans and 
addresses climate change, but, unfortunately, the House bill is 
not it.
    I want to support a bill that creates all kinds of jobs, 
not just green jobs. That bill should also reflect the 
realities of producing food, fiber, feed and fuel in the United 
States and recognize the unique aspects of rural America. I 
support greater energy conservation and efficiency. I support 
the development of nuclear energy, renewable and alternative 
energy sources and new drilling. We can do all of these things 
while addressing the environmental aspects of energy production 
and use.
    I am ready to work with all of my colleagues who share 
similar goals.
    Given the importance of this topic, Mr. Chairman, I ask you 
to consider holding more hearings on this issue. This 1,427-
page bill is far too complex to address with only one hearing. 
For example, I expect we will find out today that we need to 
delve into the proposed agricultural offsets program. We will 
need to better understand the effects on agriculture, forestry 
and rural America. We will also need to carefully review the 
role of the Commodities Futures Trading Commission under a cap 
and trade program.
    The potential long-lasting effects of this bill on the 
future of agriculture and rural America eclipses the support 
that we provided in the Farm Bill. We simply must have a 
thorough understanding before moving forward.
    So, Mr. Chairman, I thank you again for holding this 
hearing. I look forward to hearing from our witnesses and for 
us to have an ongoing dialog within the ag community on this 
issue.
    Chairman Harkin. I thank you very much, Senator Chambliss.
    Before we get to our witnesses, Senator Grassley I know 
wanted an opportunity to make a statement. Because he has to be 
involved as a Ranking Member of the Finance Committee on 
something called health care reform, I will just recognize him 
briefly.

 STATEMENT OF HON. CHARLES E. GRASSLEY, U.S. SENATOR FROM THE 
                         STATE OF IOWA

    Senator Grassley. Yes, I thank you very much, Mr. Chairman.
    I thought I ought to ask the indulgence of you, Mr. 
Chairman, to make a statement why I do not appear at one of the 
most important issues that is before the Congress that is 
affecting agriculture, which is this subject of cap and trade, 
why I cannot be here, and it is because I am negotiating on the 
Health Care Reform Bill with Senator Baucus along with a few 
other members.
    I wanted to express my concern about the impact that this 
legislation has upon American agriculture, particularly row 
crop agriculture, and to say that as a Senator from the same 
State the Chairman is from, a leading agricultural State, and 
as a farmer myself, that I am very concerned about it. I am 
going to be very actively engaged in this through the process, 
and I did not want my absence from this hearing today to show 
maybe a lack of concern.
    I share some of the thoughts that Senator Chambliss just 
gave, but I think on the point of the United States acting 
alone without some international agreement I think 
Administrator Lisa Jackson said it best when she said, ``I 
believe the central part of the charts are that the U.S. action 
alone will not impact world CO2 levels,'' that this argues for 
doing this on an international basis and not on ourselves doing 
things that are going to make American agriculture or American 
manufacturing uncompetitive.
    So I thank you very much for allowing me to speak and the 
indulgence of the other members as well and the witnesses, and 
I hope to be very involved in this in later hearings. I will 
submit questions for the record.
    Thank you, Mr. Chairman.
    Chairman Harkin. Thank you, Senator Grassley.
    Without further ado, we would like to turn to our 
witnesses. We have a great first panel to kick this off today. 
As I said earlier, at 2:30, we will reconvene with Secretary 
Vilsack, Administrator Jackson and Dr. John Holdren, Director 
of the White House Office of Science and Technology, but this 
morning, we have a great panel.
    We have: Mr. Roger Johnson, President of the National 
Farmers Union; Mr. Bob Stallman, the President of the American 
Farm Bureau Federation; Mr. Jo Pierce, a family tree farmer 
from Maine representing the Forest Climate Working Group; and 
Mr. Jason Grumet, Founder and President of the Bipartisan 
Policy Center in Washington, D.C.
    Gentlemen, all your statements will be made a part of the 
record in their entirety. I read them all last evening.
    I have asked our clerk to give you 7 minutes on the clock. 
If you run over a minute or so, that is probably OK, but let's 
try to keep it to about 7 minutes.
    If you could summarize your statements, I would be 
appreciative. We will just start with, as I read them off, Mr. 
Johnson, and we will work across.
    So, Mr. Johnson, welcome again and please proceed.

 STATEMENT OF ROGER JOHNSON, PRESIDENT, NATIONAL FARMERS UNION

    Mr. Johnson. Thank you, Chairman Harkin, Ranking Member 
Chambliss and members of the Committee, for holding this 
hearing on this very important issue.
    As the Chairman has indicated, my name is Roger Johnson. I 
am the President of the National Farmers Union representing 
about a quarter million farm and ranch families around the 
Country.
    The American Clean Energy and Security Act of 2009, as 
recently passed by the House of Representatives, we believe is 
a step in the right direction. Chairman Peterson deserves a lot 
of credit for adding provisions to that Act that are favorable 
for agriculture and forestry, and I want to take this occasion 
to thank him publicly.
    In order to address the issues of climate change, our 
policy for National Farmers Union has for some time supported a 
national mandatory carbon emission cap and trade system that 
does a number of things: grants USDA control and administration 
over the offsets programs, does not place an artificial cap on 
domestic offsets, is based upon science, recognizes and treats 
appropriately early actors and allows producers to stack 
environmental credits.
    Financial implications of this issue, climate change, are 
significant. The cap and trade allows the market to find and 
deploy low-cost emission reducers--that is the way we think it 
ought to be structured--while mitigating increased energy costs 
resulting from such a program. A cap and trade system with 
offsets could provide farmers and ranchers the opportunity to 
be part of the climate change solution by utilizing soil carbon 
sequestration and methane capture.
    The cost of no action must become a legitimate part of the 
ongoing debate. Models of climate change scenarios demonstrate 
increased frequency of heat stress, of droughts and flooding 
events that will reduce crop yields and livestock productivity. 
The risk of crop failure will increase due to rising 
temperatures and variable rainfall. Earlier springs seasons and 
warmer winter temperatures will increase pathogen and parasite 
survival rates, leading to disease concerns for crops and 
livestock. So the costs of doing nothing need to be considered 
in the calculation relative to this bill as well.
    Further, if Congress fails to pass climate change 
legislation, current law would suggest that EPA needs to move 
to regulate greenhouse gas emissions. I do not know of anybody 
who thinks that would be a better alternative. A purely 
regulatory approach to addressing greenhouse gas emissions will 
bring all of the downsides with none of the upsides that carbon 
offsets would provide for agriculture.
    The agriculture and forestry sectors should not be subject 
to an emissions cap as they are too small and diffuse to be 
directly regulated. The House bill appropriately does that.
    Agriculture, as you stated, Mr. Chairman, emits 
approximately 7 percent of all U.S. greenhouse gas emissions 
but has the capacity to offset as much as 20 percent--some 
estimate 25 percent--of all greenhouse gas emissions from all 
sectors of the U.S. economy. So it is important that we figure 
out a way to get agriculture included in this.
    Cap and trade with offsets provide a larger market, leading 
to lower costs for everyone in our society. In addition, 
offsets also provide an income opportunity to help offset some 
of the increased expenses that are certain to result as a 
result of this legislation.
    On Page 3 of my testimony, I talk a bit about legislation 
priorities, and the question is most appropriately posed.
    Chairman Harkin. Mr. Johnson? Mr. Johnson, hold on a 
second. Something has happened.
    Mr. Johnson. Are we still on here? I got a button on.
    Chairman Harkin. We blew a fuse back there. It looks like 
it is back on now. There you go.
    Mr. Johnson. OK. Are we back?
    All right. How should this be done? USDA has more than 20 
years of targeted climate change research and is probably the 
premier entity in the world with respect to climate change 
research relative to agriculture. USDA has the institutional 
resources, the administrative structure and established 
relationships with producers to oversee the offsets program. 
The 2008 Farm Bill provided the Department with the statutory 
authority necessary to create and administer an offsets 
program.
    A number of agencies at USDA are already working on this 
issue and likely will continue to ramp up their work. NRCS, 
CSRES, FSA, ERS and ARS are all agencies of USDA that are doing 
climate change work, research or work with producers.
    In addition, USDA has offices located nearby to almost all 
farmers and ranchers in the Country.
    An important issue for you to consider is to deal with the 
question of early actors. These are folks who have entered into 
voluntary legally binding contracts to reduce greenhouse gas 
emissions. We believe they should be allowed to participate 
under a Federal schedule that is adopted. We need to encourage 
widespread adoption of practices that reduce greenhouse gas 
emissions or sequester carbon, and getting these early actors 
appropriately accounted for, without penalizing them or 
adopting perverse incentives that penalize early actors, should 
be an important goal of this Committee.
    Agriculture and forestry have the ability to provide the 
easiest, the least costly and the most readily available means 
to reduce greenhouse gas emissions on a meaningful scale, and I 
think all of us on this panel would argue that should a bill 
pass agricultural offsets need to be carefully considered by 
this Committee and made an integral part of the cap and trade 
legislation.
    Allowances: We believe that the majority of the emission 
allowances under a cap and trade system should be auctioned off 
with the generated revenue used to mitigate costs and to foster 
the development of renewable low carbon energy sources and 
technologies.
    Providing a percentage of overall allowances to the 
agricultural sector, as proposed in the earlier Lieberman-
Warner climate change bill this body considered, would have a 
number of advantages:
    It would offer flexibility for agriculture producers to 
implement activities that provide greenhouse gas benefits but 
may not technically fall within the scope of an offsets 
program.
    It would also be a funding source for research and 
development that would lead to likely new offset protocols that 
also could be adopted and used to reduce our emissions.
    It could be used to help compensate some of those folks in 
agriculture who are not currently likely to benefit as a result 
of offsets. Specialty crop producers are some that come to mind 
and also dealing with those pre-2001 actors who are doing the 
right things environmentally and need to be rewarded.
    National Farmers Union believes that 5 percent of all the 
allowances should be provided to agriculture as this body has 
earlier decided should be provided to agriculture.
    Skipping to the bottom of Page 5 of my testimony, dealing 
with renewable energy opportunities, as climate and energy 
legislation moves through the U.S. Senate it is critical that 
this opportunity is used to advance renewable energy 
opportunities in rural America. There are two items in 
particular, very briefly.
    EPA should be barred from considering international 
indirect land use changes. This is unsettled science. The House 
bill did it. I would urge the Senate to follow.
    Second, it is critical that legislation include a robust 
renewable energy standard. We have abundant wind, solar and 
biomass resources. We should use them.
    Finally, near the bottom of Page 6, I would say also that I 
would encourage the Senate to look at locally owned wind 
projects and to provide incentives for them. They generate 
about 2.6 times more jobs and more than 3 times as much rural 
economic benefit than those that have outside ownership.
    Finally, Mr. Chairman, let me say that National Farmers 
Union is the largest aggregator under the current Chicago 
Climate Exchange Carbon Reduction program. We have worked with 
about 5 million acres that are enrolled across more than 30 
States, and nearly $9.5 million has been earned, almost 4,000 
producers that are voluntarily participating in this program. 
We have learned some lessons that we think should be used as 
you design this legislation.
    With that, Mr. Chairman, let me thank you for the 
opportunity to testify and for holding this hearing on this 
important issue.
    [The prepared statement of Mr. Johnson can be found on page 
90 in the appendix.]
    Chairman Harkin. Thank you very much, Mr. Johnson.
    Now we turn to Mr. Stallman, President of the American Farm 
Bureau Federation. Mr. Stallman, welcome and please proceed.

  STATEMENT OF BOB STALLMAN, PRESIDENT, AMERICAN FARM BUREAU 
                           FEDERATION

    Mr. Stallman. Thank you, Mr. Chairman, Ranking Member 
Chambliss, members of the Committee. It is a pleasure to appear 
before you today on behalf of the American Farm Bureau 
Federation, a membership organization representing six plus 
million member families all across this Country. I am a rice 
and cattle producer from Texas, and so I am intimately familiar 
with the hazards that we face in the occupation of farming.
    I commend you for convening this hearing today. The issue 
of climate change legislation is absolutely critical to 
American agriculture.
    We are heartened by your statements, Chairman Harkin, that 
you want to support and even improve upon the provisions that 
were negotiated by Chairman Peterson and the House of 
Representatives. We will certainly support you and other 
members in that effort.
    Any cap and trade bill must have the strongest, most 
effective, most comprehensive agricultural provisions possible. 
I discuss those in detail in my written statement and will be 
pleased to answer any questions with respect to those during 
the question session.
    But let me stress that it is critically important to give 
USDA full authority over the program, full authority to ensure 
that conservation tillage and no-till get appropriate credit, 
that credits are stackable, that domestic credits get priority 
over international offsets, that early actors are appropriately 
recognized and that nutritional management plans for livestock 
are encouraged. In short, we want to ensure that all efforts 
producers undertake that mitigate greenhouse gas emissions get 
credit.
    This is important for a simple reason: Even with the best, 
most comprehensive agricultural offsets program, the 
agricultural sector will lose under cap and trade. Under the 
best estimates we can make, the House-passed bill will take $5 
billion out of farmers' pockets in the short term. Senator 
Chambliss referenced that.
    The worst news is that upon full implementation we would 
expect that number to be $13 billion out of farmers' pockets, 
and it is likely that he costs could be very much higher.
    In addition, we have the potential for acreage shifts, 
which we experience in agriculture, but the structure of the 
Waxman-Markey bill and the energy expenses would tend to 
indicate that soybeans will have a preference because of less 
inputs like fertilizer and energy costs.
    We also have the very real risk, if carbon offset prices 
are high enough, of having cropland shifted into forestry.
    One thing that is not often recognized is that landowners 
are often not the farmers. There are many tenant farmers in 
this Country. Most of the acreage in this Country is farmed 
under leases from landowners, and those landowners may have a 
great incentive to put that cropland into forestry at the 
expense of the farmers who are currently farming that ground.
    But, truthfully, any figure I or anyone else gives you is 
really not much more than an educated guess. There are so many 
unknowns and assumptions and estimates that are built into this 
debate. No one can look you in the face and tell you with 
certainty what is going to happen.
    One thing, however, does seems certain. You are not going 
to make a meaningful difference in what the climate will be 40 
years from now.
    Mr. Chairman, your chart certainly showed the trends in 
temperature and carbon concentrations, but the reality is under 
the IPCC models the Waxman-Markey legislation will not alter 
that trend. Administrator Jackson of EPA testified to that fact 
just 2 weeks ago. Others have said as much.
    Bjorn Lomborg, the Danish environmentalist and author who 
has written a great deal on this topic, said: ``At a cost of 
hundreds of billions of dollars annually, Waxman-Markey will 
have virtually no impact on climate change. If all of the 
bill's many provisions were entirely fulfilled, economic models 
show that it would reduce the temperature by the end of the 
century by 0.11 degree centigrade, reducing warming by less 
than 4 percent.
    ``Even if every Kyoto-obligated country passed its own 
duplicate Waxman-Markey bills, which is implausible and would 
incur significantly higher costs, the global reduction would 
amount to just 0.22 degree centigrade by the end of the 
century.
    ``The reduction in global temperature would not be 
measurable in 100 years, yet the cost would be significant and 
payable now.''
    Mr. Chairman, I hope you and all the members of the 
Committee take those words to heart.
    Today, the United States has more recoverable coal reserves 
than any other country, over 263 billion short tons. Waxman-
Markey requires us to ration that resource.
    China has 126 billion short tons in coal reserves. Russia 
has 173 billion short tons, and you can add to Russia's energy 
resources 60 billion barrels of oil, 3 times what we have in 
the United States. Waxman-Markey puts no limit at all on how 
those nations use their natural resources.
    Here is the kicker. If you examine this issue from a truly 
environmental perspective, the United States produces more 
product per ton of emission than those other countries. We are 
more efficient users of energy. The argument that China and 
India are using, that per capita carbon emissions should be the 
standard with which to negotiate an international agreement, is 
flawed. I would think we would want to have a system that 
rewarded productivity and energy use.
    Waxman-Markey penalizes the best environmental steward in 
terms of the U.S. and does nothing to tackle the real problem. 
We strongly urge Congress to reject such an approach.
    I hear from farmers all over the Country who are following 
this debate, and they keep asking me: Why are they doing this? 
Frankly, I do not have an answer.
    As Mr. Lomborg points out, coal-fired power plants being 
build today in India and China have the potential to lift a 
billion people out of poverty. I think we can all agree that is 
probably a good thing. But we do not have to reduce the 
American standard of living at the same time, and we should 
not. Make no mistake, Waxman-Markey puts a huge economic burden 
on American citizens.
    This issue is at a critical juncture. It is imperative that 
this Committee formulate the strongest agricultural offsets 
program possible, but we also strongly urge all members of the 
Committee to work with your colleagues to make the right policy 
choices. If those choices cannot be made, then you should 
reject the overall bill, just as a strong bipartisan group did 
in the House.
    We hope this Committee will mark up your own provisions to 
be incorporated in any bill and conduct further hearings if you 
think it is advisable. If you take the time to evaluate this 
issue honestly, fairly and objectively, we have no doubt you 
will craft a much better bill than the one passed by the House 
of Representatives.
    Never forget a few simple facts: If you want to change the 
climate in 40 or 100 years, this bill will not do it. If you 
want the U.S. to compete internationally, this is not the 
answer. If you want to make the U.S. energy independent, this 
is not the solution.
    Thank you again for the invitation to testify, and I look 
forward to answering questions.
    [The prepared statement of Mr. Stallman can be found on 
page 106 in the appendix.]
    Chairman Harkin. Thank you very much, Mr. Stallman.
    Now we will turn to Mr. Jo Pierce on behalf of the American 
Forest Foundation. Mr. Pierce.

  STATEMENT OF JO PIERCE, FAMILY TREE FARMER ON BEHALF OF THE 
                  FOREST CLIMATE WORKING GROUP

    Mr. Pierce. Thank you, Chairman Harkin, Ranking Member 
Chambliss, Senators, for the opportunity to come talk with you 
today.
    America's forests have a lot to offer when it comes to 
addressing climate change. Right now, according to the EPA, 
U.S. forests sequester and store 10 percent of our annual 
emissions. EPA estimates can double this number, supplying 20 
percent of the Nation's climate solution from our forests.
    This is a solution here in our own backyards. All we need 
to do is to encourage sustainable forest management. I want to 
be clear, we are not looking for people to plant trees on 
farmland. The problem is too many landowners who do not manage 
their land the way my family does, and we have to bring them 
along to do sustainable forestry.
    Forest offsets are a key cost saver in cap and trade. EPA's 
analysis of the House bill showed reliance on U.S. forest 
offsets for over 80 percent of domestic offsets. With such 
heavy reliance on forest offsets, forests are key to keeping 
the costs of a cap and trade system low. Including a strong 
role for forests in a cap and trade system will also provide 
thousands of new green jobs in rural communities, putting 
people to work harvesting the carbon in our forests.
    It is not just forest owners like me that agree about the 
strong role of forests in climate solutions. The Forest Climate 
Working Group, a diverse coalition of groups from the Hardwood 
Federation to the National Wildlife Federation, all support a 
strong role for forests in climate legislation. We will submit 
into the record a letter from this diverse group later in the 
day.
    To secure this climate benefit, climate legislation must 
engage the broad range of owners of U.S. forests. Most people 
think U.S. forests are owned by the Feds or big industry, but 
this is far from reality. In fact, over 10 million private 
forest owners in America own most of the Nation's forests. Most 
of these owners are families just like me. I am a sixth 
generation family forest owner managing my land for income, 
wildlife and other community amenities like clean water and 
recreational opportunities.
    Why not for carbon sequestration too?
    Unfortunately, with declining timber markets and increased 
development pressures, we are losing forest land. I get four or 
five offers for my land every year.
    Climate legislation can set up new income streams for 
forest owners to help them hang onto their land while providing 
climate benefit. To fully capture the estimated 20 percent of 
the Nation's climate solution from our own forested backyards 
and engage the 10 million owners of U.S. private forests, 
climate legislation must put the right incentives and market 
structures in place.
    So what are key elements of climate legislation that will 
engage the Nation's private forest owners in climate mitigation 
activities?
    First, the legislation should establish environmentally 
sound offset markets that are flexible enough to engage a broad 
range of forest owners. Specifically, the legislation must: 
Specify forest project types, allowing offset projects from 
improvement of forest management activities with appropriate 
crediting for harvested wood products, not just tree planting. 
Provide flexible contracting options for landowners who may or 
may not be able to commit to a very long-term contract as 
required in many other offset markets right now. Reward early 
actors who have already taken steps to combat climate change. 
Provide a role for the USDA in offset markets.
    The House-passed bill contained improvements on some of 
these issues, but more can be done.
    Second, legislation should provide forest carbon incentives 
that capture climate mitigation benefits from forests that do 
not fit in the carbon offset markets. This is especially 
important for smaller forest owners who are not likely to 
participate in offset markets because the up- front investment 
is not likely to be recovered on small forest tracts. 
Interestingly, these smaller owners hold one-quarter of the 
private forest land base. So these types of incentives are 
critical to fully tap the climate mitigation potential from 
private forests.
    Unfortunately, these incentives were not provided in the 
House-passed bill even though an amendment was offered to 
create them.
    Third, the legislation should provide resources for forest 
adaptation activities to ensure that the climate mitigation 
tool we have in our forest backyard is not overtaken with 
impacts from climate change like drought, fires, pathogens and 
pests.
    The House-passed bill is an improvement, but more can be 
done.
    The bottom line is the U.S. forests have a lot to offer, 
and we should not miss the opportunity to deal with climate 
change while also setting up incentives and markets to keep 
families like me on the land and keeping it forests.
    Chairman Harkin. Thank you very much, Mr. Pierce.
    Now we will finish our testimonies with Mr. Jason Grumet. 
Do I pronounce it Grumet or Grumette?
    Mr. Grumet. Senator, shockingly, you did pronounce it 
correctly. It is Grumet. Thank you.
    [The prepared statement of Mr. Pierce can be found on page 
100 in the appendix.]
    Chairman Harkin. Yes, we have good staff working. All 
right, Mr. Jason Grumet, President of the Bipartisan Policy 
Center.

 STATEMENT OF JASON GRUMET, FOUNDER AND PRESIDENT, BIPARTISAN 
                         POLICY CENTER

    Mr. Grumet. Well, good morning, Chairman Harkin, Ranking 
Member Chambliss and the Committee.
    As you note, I am Jason Grumet. I am the President of the 
Bipartisan Policy Center. On behalf of our founders, your 
former colleagues, Tom Daschle, Bob Dole, George Mitchell and 
Howard Baker, it is a pleasure to appear before the Committee 
today.
    Also I want a special thanks to go to Mr. Chambliss for the 
high protein breakfast snack that we all enjoy. We appreciate 
that very much.
    Mr. Chairman, the Bipartisan Policy Center was created to 
provide both the motivation and the infrastructure for the kind 
of principled compromise that you all well know is necessary 
for the kind of durable policy change that we need in this 
Country. Toward that end, we have projects underway on health 
care and national security, regulatory reform and 
transportation policy, but we have two projects that bear 
directly on the inquiry here today.
    The first is a project that was begun in 2001 called the 
National Commission on Energy Policy. This effort has brought 
together a diverse group of energy experts, chaired by former 
EPA Administrator Bill Reilly, John Rowe, who is the Chairman 
and CEO of the Exelon Corporation, and, until recently, by John 
Holdren, who you will be hearing from later today.
    Consistent with the way that you framed the challenge in 
your opening remarks, we see the goal as trying to figure out 
how we address the challenges of climate change consistent with 
our longer-term national security and economic goals. And, in 
particular, we focus on mechanisms to address, I think, many of 
the very real concerns that Mr. Stallman has raised: How do you 
ensure that you can address climate change in a meaningful and 
sincere way without having excessive volatility in prices or 
excessive impacts on the economy? I will draw from some of our 
thinking in a moment.
    The second project is a project that Senators Daschle and 
Dole have led personally. This is the 21st Century Agriculture 
Policy Project. They have been working together for several 
years. They have produced two reports which have been submitted 
to the record previously, but as we are down to our last 18,000 
copies I have brought a few more for your enjoyment. These 
reports really focused, first, broadly on the questions of what 
are new opportunities for agriculture in new competing markets.
    They held a series of hearings around the Country. They 
conducted and sponsored a series of analysis, some by Dr. 
McCarl from Texas A&M, who I know you are also working with. In 
the conclusion of Dr. McCarl, the sense was that a well-
designed market that took advantage of all these opportunities 
could in fact provide net benefits for the agriculture 
community.
    On the basis of that and their analysis, and I will quote, 
Senators Daschle and Dole concluded in the first study that 
``Federal action to establish a mandatory program to limit 
greenhouse gas emissions is sensible and will provide 
agricultural producers with significant new market 
opportunities.''
    They continue that ``The agriculture sector is in a unique 
position to lead and benefit from efforts to address climate 
change.''
    The second study focused on taking that theoretical 
possibility and figuring out how, in practice, to capture the 
real opportunities to provide a new economic impetus for 
American farming and forestry through carbon sequestration 
activities.
    I think the prior witnesses have done an excellent job of 
framing the risks and opportunities that we have, and I think 
the principal point I want to share with you is that it is 
really up to you. You can design a carbon mitigation strategy 
that mitigates the costs and takes advantage of those 
opportunities in a way that is going to be very good for 
American farming and forestry. But it is equally true that a 
poorly designed program that does not address the risks of high 
cost and price volatility and does not capture the very 
significant opportunities for agriculture will harm the 
industry.
    I think it is important to move away from this kind of 
binary culture war of is climate change going to be good or bad 
for American farming. The answer is it depends, and I think we 
have the opportunities now that I would like to reflect upon to 
chart that productive course.
    So, first of all, I want to embrace Mr. Stallman's 
challenge, that we have to think seriously about the potential 
for price volatility and the costs borne by agriculture and all 
energy-intensive industries. This Committee, like those before, 
has always faced the challenge of having sensible experts who 
reach wildly different views on the costs of climate change 
control, and that comes from the fact that you can put together 
a number of reasonable optimistic or reasonable pessimistic 
assumptions on the progress on technology, on future prices for 
natural gas, on the availability of offsets and reach wildly 
different conclusions.
    This has been going on for quite some time. In the 1990's, 
the Council of Economic Advisers concluded that we could 
achieve compliance with Kyoto for between $14 and $23 a ton, 
but the Department of Energy thought it would be $95 a ton.
    We have the challenge of people coming forward and 
basically having the kind of my modeler is smarter than your 
modeler fight. Ultimately, of course, we do not know.
    It is important, I think, to have mechanisms that do not 
rely on the magic words, ``trust me'', because there is simply 
not enough trust in this debate, and the stakes are too high to 
gamble our future on one side or the other being right.
    The good news is those mechanisms exist. Our Energy 
Commission proposed many years ago the idea of a cost cap in 
the early years of the climate program, called the safety 
valve, in which the government would provide credits at a fixed 
price to people who had a compliance obligations. By setting 
that fixed price, you could provide a meaningful absolute cap 
on the total cost of the program.
    This idea has matured over the years, and in the Warner-
Lieberman legislation and in the recent House bill the idea of 
a credit reserve, which I am happy to talk about in more 
detail, is something that we have helped develop and support. 
This would take credits from the future and put them in a 
transparent vat that you could go access if in fact it turns 
out the technology is not proceeding at the pace that we hoped.
    Either of these mechanisms provide the opportunity for 
predictable and transparent cost containment, which we do 
believe is going to be necessary to build a meaningful 
bipartisan consensus.
    I will note that there are a few other mechanisms that the 
House bill and prior Senate bills have take advantage of. First 
of all, as I think Mr. Chambliss points out, farming is an 
energy-intensive industry. As Senator Stabenow and others have 
spent a great deal of time focusing on how we address the 
transition for energy-intensive industries, one good 
opportunity is to provide free permits for a period of time so 
that companies have the resources to invest and modernize and 
become more efficient. I think the House made a smart choice in 
including key aspects of the agriculture sector in that energy-
intensive category--fertilizer manufacturing, wet milling and 
others--and we commend you to look at those ideas.
    Then, finally, issues of market design are important, and, 
Chairman Harkin, I know this is a concern of yours. The words, 
market-based program, are not quite the selling point that they 
used to be in proposing new policy ideas since the financial 
collapse.
    One of the benefits of cost containment, having both a 
price floor and a price ceiling, is that you reduce the market 
volatility. Consumers do not like volatile prices. One group 
that does like volatile prices is Wall Street. That is where, 
if there is going to be mischief, that mischief can come from--
arbitraging the highs and the peaks and the valleys and the 
lows.
    If you have a cost collar, both a cost floor and a cost 
cap, you can dramatically reduce that concern and, importantly, 
do so without coming up with overly prescriptive regulations 
that could actually seize the market and stop it from 
functioning at all. We think you do need to be careful not to 
try to be overly prescriptive in regulating the market. Having 
a cost cap for the first several years, we think, is a good 
opportunity.
    Let me turn now in the limited time I have left to the good 
news, to the opportunities to capitalize on the significant 
ability of agriculture and forestry to help solve this problem.
    The House debate focused greatly on which agency should 
have the lead, and we commend and applaud Chairman Peterson's 
efforts to demonstrate the important role that the agriculture 
community and the USDA should play in leading this program. 
Senators Dole and Daschle focused less on which agency should 
have the lead and more on what is a program design that would 
encourage the kind of collaboration and discourage the conflict 
that we have seen from time to time between environmental and 
ag advocates and between USDA and USEPA.
    I want to very much reinforce Mr. Johnson's suggestion that 
we take a two-track approach. Senators Daschle and Dole believe 
that we should have unlimited access to domestic farm offsets 
for projects that can be demonstrated to meet the rigorous 
measurement, permanence and additionality requirements, but 
they also recognize that not all programs are going to fit 
easily into that set of ideas, and there is a real concern that 
the high level of scrutiny could slow down the market in a way 
that we cannot tolerate.
    So they propose, I think similar to Mr. Johnson, that we 
have a second track where we encourage more innovation and more 
experimentation, and we do so by insuring the program with 
emission credits. Rather than giving those credits to somebody 
to emit, you hold those credits aside and you use these 
allowances to essentially provide insurance against more 
innovative and creative projects--projects that are more 
complicated because there are early action issues that create 
concern over baseline, projects in which they are brand new and 
we need to learn our way through that system.
    Just like we provide bonus allowances to encourage carbon 
sequestration, just like we support the need for loan 
guarantees for nuclear power, we need to have an opportunity to 
be experimental. It is in that spirit that we are confident 
that the ag and the environmental communities will work well 
together.
    The offsets program in its most rigorous form is an all or 
nothing proposition. It forces EPA to focus on the 5 percent 
that is imperfect and not the 95 percent that is perfect. So 
having this alternative mechanism, we think, will enable much 
greater collaboration.
    So, in closing, I just want to make two points. First, 
absent purpose-designed climate legislation, the government 
will have no choice but to use the existing statutes that you 
have all passed, that being the Clean Air Act. As Mr. Johnson 
points out rightly, that obligates EPA to focus on the glass 
being half empty. It obligates them to focus their considerable 
regulatory authority in traditional command and control 
regulation, and they do not have the ability to enable the ag 
and forestry communities to capitalize on the significant 
opportunities through sequestration.
    Finally, this Committee has a proud history of 
bipartisanship and putting the interests of agriculture ahead 
of party interests. I will note that despite the tremendous 
themes and theories of Purple Nation and bipartisanship in the 
campaign, when I tell people these days that I run something 
called the Bipartisan Policy Center, they tend to smile and 
say, good luck with that.
    We need more than good luck. We need real leadership, and 
this is the Committee, I think, that can bring the debate back 
to focus on the real substantive challenges and design a 
program that is truly going to be in the best interest of 
American agriculture and forestry. I look forward to the 
opportunity to be able to work with you in that regard.
    Thank you.
    [The prepared statement of Mr. Grumet can be found on page 
74 in the appendix.]
    Chairman Harkin. Thank you very much, Mr. Grumet, and thank 
you all for good testimonies, not only verbally but your 
written testimonies.
    We will start now rounds of 7-minute questions, and, if we 
can get the clock reset here, I will start.
    First of all, I will start with Mr. Johnson.
    The Farmers Union Carbon Credit Program allows producers to 
earn income by reducing greenhouse gas emissions through no-
till, anaerobic manure digester systems, tree plantings and 
other sustainable management techniques. It is my understanding 
that carbon sequestration methods can be implemented with 
conventional farming techniques so that the agriculture 
community can provide carbon offsets in a cost-effective manner 
while acquiring new revenue. So I think it is not a matter of 
deciding to grow carbon or crops. Producers can be growing both 
crops at once on the same land.
    Could you elaborate on the opportunities that a global 
warming bill could bring to farmers? How large was your effort 
and how many farmers have participated? What does the trend 
look like? Are farmers able to adopt these practices? Those are 
kind of the questions I want to get into on your carbon credit 
program.
    What would happen to your program? How might it accelerate 
if in fact we did in fact have a cap? Right now, there is no 
cap. I do not know how much your farmers are making, but with a 
cap, obviously, those offsets become more valuable.
    Mr. Johnson. Well, thank you, Mr. Chairman.
    On Page 7, near the top of my testimony, I give you some of 
the numbers: about 5 million acres that have been enrolled, 
30--I think the latest number is closer to 40--States, about 
$9.5 million, about 4,000 producers.
    But the crux of your question really gets to what are the 
opportunities and is there a difference between the voluntary 
program that we operate now and a mandatory program that would 
exist under a cap? Let me take those in two pieces--first of 
all, the kinds of things that would and should be eligible.
    First of all, we have no-till practices. There are lots of 
science that says you follow no-till practices, especially in 
certain areas of the Country, you clearly sequester carbon and 
store it underground in the root structure at variable rates. 
And so, under the program, there is a larger credit that is 
given to a farmer in one part of the Country versus another 
part of the Country because the science says that that is the 
way it ought to be.
    Precision farming is one of those that we have not yet had 
approved through the CCX. This voluntary market has only been 
operational for about 3 years. In 2006 is when we entered it. 
So it has not been around all that long.
    But, under precision farming, one of the very deleterious 
greenhouse gas emissions that exists is nitrous oxide. It is 
like 300 times more potent than carbon dioxide. So, by certain 
kinds of fertilizer practices that reduce those gaseous 
emissions of that nitrogen going into the air, you can clearly 
reduce greenhouse gas emissions.
    No we have not advanced the protocols yet to the point 
where we are actually giving folks credit for that, but 
certainly that is a good example of the kinds of R&D that ought 
to be funded so that we in fact could figure out a way to 
appropriately compensate folks for that, if not under offsets 
then under the allowance pool that we have been talking about 
as well. So there are lots of those kinds of examples.
    Now, as to your question about what is the market likely to 
look like in a voluntary versus a mandatory system, I think the 
average price that our folks have received has probably been in 
that three to four, maybe five dollars a ton range. Today, it 
is well under a dollar a ton for two reasons. The economy 
collapsed, No. 1. No. 2, all the uncertainty that is generated 
by these debates in Congress right now lead people to wonder 
whether what they are signing up for today will be eligible 
under a system going forward, and so that has a severe market-
depressing impact.
    Pretty clearly, under a mandatory system, that uncertainty 
would go away once you have a bill that is passed and you know 
what the rules. Most models suggest that the value of a ton of 
carbon would go up significantly under a mandatory system.
    Today, the value is determined mostly out of the 
graciousness of some large companies, both national and 
international companies and that are voluntarily purchasing 
these carbon reductions in order to have a clean, green image 
to the press or maybe they have got some attendant obligations 
under Kyoto because they are a multinational company. Maybe 
they just want to do kind of the right thing environmentally. 
Maybe it is part of their marketing program. But, whatever it 
is, it is different reasons for different companies, and it is 
voluntary. So, as their income goes down, you know the 
likelihood of them investing in these voluntary things goes 
down with it as well.
    Chairman Harkin. First of all, I just want to say at the 
outset to everyone here that this whole debate, I guess if you 
want to call, about whether or not early actors as we now call 
them--I get all kinds of new phrases coming down here--will be 
folded into the system. I can assure you they will be. I have 
spent too many years on this Committee and in the House 
committee watching programs come up that require a farmer to 
tear up conservation practices in order to redo them to 
qualify.
    Mr. Johnson. Exactly, exactly.
    Chairman Harkin. It ain't going to happen. OK?
    Mr. Johnson. Good.
    Chairman Harkin. There are very few things I can guarantee 
but on that one, we are going to make sure.
    Mr. Johnson. All right.
    Chairman Harkin. We did that in the conservation 
stewardship programs, saying that if you were doing these 
practices you were eligible for it just as much as anyone else. 
So I want to make that very clear, and I think we will find 
probably a pretty good consensus here on this Committee and in 
the Senate for that.
    The other thing, does it makes sense right now for your 
farmers to adopt some of these practices, economic sense, Mr. 
Johnson? You are talking about a dollar a ton?
    Mr. Johnson. Yes. At that price, certainly, that is not at 
a high enough level to sort of induce people to do something 
that they otherwise would not do, and that is one of the 
fundamental precepts of an option, by the way, of the various 
protocols that are involved. It is the principle of 
additionality. You want folks to do something that they would 
not otherwise do in the absence of that offset opportunity. So 
that is something that we are really struggling with, with the 
market as low as it is right.
    But, over the last weekend, I met with a dairy farmer in 
southern Virginia who is very seriously looking at putting in a 
methane digester, a fairly sizable dairy producer. Well, it is 
not economical today. I mean you just cannot make it work just 
on dollars and cents.
    He wants to do it for all the right reasons. He likes the 
environmental impacts. He is in an area where he has got a lot 
of neighbors. They would appreciate the fact that the odor 
problem largely disappears with methane digesters. If you have 
a significant value that can be attached to the reduction of 
that methane, the destruction of that methane by burning it, 
that is probably enough to tip a number of folks over into 
adopting those kinds of practices that have a multiplicity of 
benefits for the environment.
    Chairman Harkin. Well, thank you.
    I, obviously, have questions for other panelists. I will 
have to wait until my second round. Now I will turn to Senator 
Chambliss.
    Senator Chambliss. Thank you, Mr. Chairman.
    Mr. Stallman and Mr. Johnson, both of you represent large 
producers from different parts of the Country, but the 
testimony of the two of you differs substantially on the costs, 
the benefits and the other likely impacts of the House bill on 
production agriculture. I would like for both of you to comment 
on that.
    What is the reason for this difference, Mr. Johnson?
    Mr. Johnson. Well, you know I think it is important, 
Senator Chambliss, that maybe we talk about where we agree. You 
know Mr. Stallman can certainly have a chance to respond to 
this after I do, but I think on pretty much all the kinds of 
things, if you listen closely to my testimony and to his 
testimony and the testimony of the other witnesses, these kinds 
of things relative to agriculture, if they are folded into a 
bill, these are all things that we agree on.
    Where our fundamental disagreement lies is whether we ought 
to pass a bill like this or not.
    You know I can only speak for myself and for my members. 
Our policies are adopted by all of our members as they come 
together in the national convention, and we have had this 
policy for a number of years. It has been longstanding policy.
    I would say a couple of things. First of all, we take 
seriously this threat that EPA may at some point, under 
existing law, go out and try to regulate what is going on in 
agriculture. We do not like that idea very much.
    Under the Clean Air Act, you now have a Supreme Court 
decision that basically compels them to do it. You have an 
endangerment finding that fits into that. You have a regulatory 
threshold under the bills that are being contemplated that is a 
thousand times larger than the regulatory threshold under the 
Clean Air Act.
    That is why farmers, most farmers and ranchers are excluded 
under the cap and trade legislation. They are provided these 
optional opportunities. Under EPA, that may be that we may be 
required to do a whole bunch of things. And so, we take that 
very seriously.
    We also think that we believe the science. I mean the 
science seems compelling. It says climate change is happening, 
mankind is having an impact on it, and we need to do something 
about that. Now whether it is all this bill or something else, 
you know there is a lot of room for us to come together on 
different parts of it. We think something needs to be done, and 
we want to be helpful in that debate, and we would be delighted 
to work with you.
    Chairman Harkin. OK. Mr. Stallman?
    Mr. Stallman. Senator, with respect to our economic 
analysis, we were trying to figure out some common set of 
numbers or assumptions to use, and so we used the EPA's 
analysis of the Waxman-Markey bill which we view as a very rosy 
scenario in terms of impact on energy costs. That is what gave 
us our $5 billion reduction in net farm income and up to $13 
billion reduction in net farm income. So our economics team 
used that as the basis for trying to analyze the impact on 
agriculture.
    Once again, you can pick other assumptions. You can pick 
higher energy costs, which we feel are more likely than not 
given the EPA's assumptions about the Waxman-Markey bill and 
how fast things like nuclear and solar and wind-generated 
electricity will come online, and come up with much worse 
numbers.
    We do disagree with my colleague here relative to a couple 
of issues. One is we are focusing on the Waxman-Markey bill and 
what the impacts of that are going to be. Once again, that 
bill, even by proponents of the global warming crowd, will do 
little or nothing to address this problem. And so, then our 
question becomes why are we burdening the U.S. economy with a 
bill that admittedly will not do anything to address the 
problem that it is purported to address? So that is one area 
that we disagree with pretty substantially.
    On the EPA regulation issue, currently, under the 
endangerment finding in the Massachusetts case, EPA has the 
obligation to regulate basically auto emissions. All of the 
rest of their proposed regulation is very speculative.
    I find it very difficult to believe that this Congress 
would give them the amount of resources necessary to come out 
on a farm by farm basis and regulate agriculture. It may 
happen. I am not saying it cannot happen, but that would be so 
burdensome and onerous. I think there would be an outcry that 
this Congress would address. So I am not as concerned about 
that as my colleague sitting next to me is.
    Those are some of the fundamental differences that we 
think, but it really comes back to looking at the specifics of 
the Waxman-Markey bill and trying to determine what those 
impacts will be, not only on agriculture but on America in 
general.
    Senator Chambliss. And, again, I assume this is not Bob 
Stallman's opinion. It is the opinion of your membership in 
some sort of formalized way.
    Mr. Stallman. Well, absolutely, Senator Chambliss. I did 
not talk about our decisionmaking process, but we actually 
start out at the county level with proposals that go up to a 
State level meeting and then ultimately to our national 
meeting, all decided upon by our delegates that are there 
representing their respective members at each level. It is a 
very democratic, grassroots process, and it allows for a lot of 
debate. In fact, it allows for about 5 months worth of debate 
every year on these issues, and that is how we derive our 
policy positions.
    Senator Chambliss. Mr. Johnson, I can appreciate the 
willingness of your members to want to address climate change. 
However, in your testimony, you do not address the cost aspects 
of the House bill and a cap and trade program. Yet, these costs 
are likely to be significant for producers in every rural part 
of America.
    Has NFU done an analysis of those costs and what do you 
think about the other studies that have been done that are 
going to project these high costs on your membership?
    Mr. Johnson. Senator Chambliss, we are concerned about the 
costs. We are convinced that there will be some increased costs 
to producers. Energy costs are going to go up. I do not think 
there is much debate about that. As a result, you are likely to 
see fertilizer prices, particularly nitrogen fertilizer prices, 
go up. So you are going to see costs go up.
    We have not done our own independent studies. Lots of 
studies have been done, as you know. Mr. Stallman talked about 
their in-house study. Ohio State just did and released a study. 
The FAPRI released a study. Most of these have been 
considerably lower than what the Farm Bureau study result has 
been.
    All of these have not included the costs of doing nothing, 
and that is a real challenge that I think all of us have. We do 
not have the resources to do that, but I hope that this 
Committee will figure out, will try to sort out is there a 
methodology to quantify these additional costs to risk 
management, to insurance companies, to disaster payments that 
Congress is likely to authorize as a result of the increased 
flooding and droughts and fires and pestilence--those sorts of 
things that pretty much the body of scientific evidence 
suggests is the outcome that we are likely to see more and more 
of in increasing amounts as global change continues to happen.
    Those are difficult things to get your arms around, and so 
we do not have an internal study that we have looked at, but 
there are have been a lot of studies out there. I think the 
FAPRI study basically said the cost to the average person is 
like 50 cents or something like that. There was another study 
that says it is going to be less than $5 an acre on average, 
much higher for some crops, lower for others. So they are kind 
of all over the board.
    Senator Chambliss. Mr. Pierce, quickly, you talked about a 
small forest landowner not really being able to participate in 
the House-passed design. What are we talking about with a small 
forest? Are you talking about 50 acres, 100 acres, 200? What 
range are you looking at there?
    Mr. Pierce. We are talking about 100 acres or less. It just 
does not pay to do all the auditing and the setting up of a 
carbon sequestration program.
    Senator Chambliss. OK. Thank you, Mr. Chairman.
    Chairman Harkin. Thank you, Senator Chambliss.
    I might just add that I just received this morning a 
preliminary analysis of the effects of H.R. 2454 on U.S. 
agriculture from the Office of the Chief Economist at USDA. It 
was just delivered this morning. I think this would be a good 
point just to read the executive summary.
    They said that USDA performed a preliminary economic 
analysis of the impact of the House-passed bill. The analysis 
assumes no technological change, no alteration of inputs in 
agriculture and no increase in demand for bioenergy as a result 
of higher energy prices. Therefore, the study overestimates the 
impact of the climate legislation on agricultural costs in the 
short, 2012-2018, medium, 2027-2033, and long term, 2042-2048.
    In USDA's analysis, short-term costs remain low in part 
because of provisions in H.R. 2454 that reduce the impacts of 
the bill on fertilizer costs. In fact, the impact on net farm 
income is less than a 1 percent decrease. In the short run, 
agriculture offset markets may cover these costs. Over the 
medium term and long term, cost to agriculture rise but remain 
modest, 3.5 percent and 7.2 percent decreases in net farm 
income respectively over the medium and long term.
    However, benefits to agriculture from an offsets market 
rise over time and will likely overtake costs in the medium and 
long term.
    Other studies that account for the impact of higher energy 
prices on input substitution and demand for bioenergy find that 
H.R. 2454 leads to higher agricultural incomes even without 
offsets.
    In summary, USDA's analysis showed that the agricultural 
sector will have modest costs in the short term and net 
benefits, perhaps significant net benefits, over the long term.
    Their table that they had here showed that the effects in 
the short term from 2012 to 2018: Total expenses, 0.7 billion; 
fertilizer and lime, less than 0.1. So the total of fuel, oil 
and electricity is about 0.7. So about seven-tenths of a 
percent increase in farm expenses from the 2012 to 2018 
timeframe.
    So this is USDA's analysis. I am sure you will be reading 
about it today, but I thought this would be the appropriate 
place to mention that we just got that to the Committee today.
    Now, in order of arrival, Senator Johanns, Senator Lugar, 
Senator Stabenow, Senator Roberts, Senator Klobuchar, Senator 
Lincoln. So I will recognize Senator Johanns.
    Senator Johanns. Mr. Chairman, let me start by just 
expressing my appreciation not only to the witnesses but to the 
Chairman for calling this important hearing. I do appreciate 
it.
    Mr. Johnson, let me start with you. The legislation is so 
complex that I could probably spend 2 hours with each witness, 
and we do not have 2 hours. We have 7 minutes in the first 
round at least.
    But I was struck by the fact that one of the things you 
said at the start of your testimony was that Waxman-Markey was 
a step in the right direction, and I want to drill down a 
little bit deeper on that. One of the things that I understand 
about Waxman-Markey is that it does not help out the early good 
actors. Is that your understanding also?
    Mr. Johnson. Senator Johanns, I think Waxman-Markey could 
be improved by this Committee significantly on the question of 
early actors, and that is really one of the things. They just 
did a tiny something, like a quarter of a percent of the 
allowance allocation. That is one of the reasons why we have 
asked for a 5 percent of the allowances to go to USDA to figure 
out how to appropriately deal with early actors.
    The early actor question is a really difficult question 
because the purists--and I do not mean that pejoratively--when 
dealing with offsets, will argue that you should not pay 
someone for doing something that they would have done anyway. 
If you do, you are violating this principle of additionality.
    But most of us who live in the real world would say, well, 
the last thing you want to do is to incent someone to plow up 
no-till so you can redo no-till or to take land out of CRP so 
you can put it back into permanent grass.
    To deal with those things, there are a couple of ways you 
do it. You either bend that definition of additionality. What 
we would argue is you use a baseline, and the House did that, 
of 2001. For practices beginning after 2001, going forward, 
they are eligible. That bends that definition a little bit. 
But, beyond that, you need to provide another pool of resources 
so that you can put policies in place that do not provide these 
sorts of perverse incentives.
    Senator Johanns. To date, there is a real deficiency here. 
It is not only in the legislation, but it is also in what USDA 
is saying. USDA, in testimony before EPW, says ``To ensure that 
carbon offsets result in real atmospheric benefits, carbon 
offsets must be additional. That is carbon offset credit must 
not be awarded for actions that have happened in the absence of 
the offsets policy.''
    So, at least to date, this Waxman-Markey bill is a very 
serious problem for agriculture. Would you agree with that?
    Mr. Johnson. Well, no, I do not know that I would.
    First of all, what I would agree with is that definition 
that you just read from the Secretary, I think, very accurately 
summarizes the principle of additionality that proponents of 
offsets insist upon being met.
    Senator Johanns. That very well summarizes the position of 
the USDA.
    Mr. Johnson. Well, you will have to ask the Secretary. I am 
sure you will later today. But I suspect that it does. It is on 
the record. And, it is for that very reason that you need 
another pool of money to deal with these early actors.
    To get to the premise of your question initially, it was 
about my statement that the bill was a step in the right 
direction. There is a lot of things sort of built into that 
summary statement, if you will.
    One of the things that I think and I hope will happen in 
the Senate is that you will have the benefit of looking at the 
language well in advance of having to make decisions and will 
have the ability to make lots of adjustments that many of us, 
as we were involved in testifying on the House side, we just 
simply did not have that advantage. Language arrived late. It 
is sort of the nature of the process. I understand that.
    But, hopefully, the best news I heard out of this was 
announcements by your Chairman and other chairmen over here 
saying that they intend to use the language of the House as a 
starting point. I think that is wise because it is complicated 
language. Undoubtedly, there is lots of room for improvement.
    Senator Johanns. What other areas, as you have now had a 
chance to review and analyze the bill, would you say we should 
reject, pay attention to? What other deficiencies do you see in 
Waxman-Markey?
    Mr. Johnson. If you will look at my testimony beginning on 
Page 3 and through Page 5, I summarize, and, again, the focus 
that we have taken here is on the agricultural and forestry 
offsets. I summarize a number of the principles that we think 
are very important.
    We think in the case of early actors they did not go far 
enough. We have already talked about that.
    On the question of unlimited domestic offsets, they have a 
limit that is imposed. In fact, this is another area where I 
think Mr. Stallman and I would agree. We think there ought not 
be a limit there, and we think you ought to devise a system 
that gives preference to domestic as opposed to international 
offsets.
    We think while there was some language in there trying to 
deal with this, the international trade issue, that is an 
enormous for us. If we go down this path and major emitters 
like China and India do not, then we are at a significant 
competitive disadvantage. You need to have some provision, 
whether it is through the use of tariffs or something, that 
will sort of level that playing field, if you will. And, it 
would probably need to be country by country because much of 
the rest of the world were signatories to Kyoto, and so they 
are embarking on something not identical but probably similar 
to what we are talking about here.
    Senator Johanns. Let me stop you there, Mr. Johnson.
    Mr. Johnson. OK.
    Senator Johanns. What if we do have a tariff system on 
China? China has basically said: We are not going to agree to 
caps. Take a hike.
    So, if we have a tariff system on China's goods, whatever 
the goods are we want to put a tariff on or some kind of trade 
barrier or whatever, what do we do when China says, we do not 
want your soybeans?
    Mr. Johnson. Well, you know you raise a really good point, 
and the point is about the integration of our policies with 
respect not only to this legislation but with respect to our 
negotiating positions at the WTO and those sorts of things as 
well. You need to. That is something that we do not have a lot 
of expertise in. We just think that that is something that you 
need to deal with.
    My guess is that what China is saying and what India is 
saying is going to be muted and defused as the years go by, in 
fact, as the months go by, leading up to the big conference in 
Copenhagen in December. Some of this is probably positioning. 
Some of this is making sure that different countries have the 
moral authority to stand up and argue one way or another way.
    It would be my hope that what happens, depending upon where 
this legislation is in this Country, that our Administration 
will go to Copenhagen and argue with as much passion as 
possible that the rest of the countries of the world need to be 
joining in this fight because a ton of greenhouse gas 
emissions, whether it comes from the U.S. or China, has the 
same impact.
    Senator Johanns. Let me wrap up because I am out of time, 
but I will say this. With many years of experience in dealing 
with them, they are not positioning. Ask our pork producers. 
Ask them about poultry. They are not positioning. On the last 
day, China will look out for China.
    Chairman Harkin. Thank you very much, Senator Johanns.
    Senator Lugar.
    Senator Lugar. Well, thank you, Mr. Chairman.
    Let me just say at the outset that when asked by the press 
whether I would have voted for Waxman-Markey if I had been in 
the House, my answer is no. Now this does not mean that I am 
opposed to our Committee writing a bill, and I look forward to 
working with the Chairman and the distinguished Ranking Member. 
But we have just touched upon one reason why we really have a 
danger zone, and I understand the problems of dealing with 
China and India and the fact that they are not very cooperative 
but there is already a little bit of a protectionist tendency 
in our governmental policies perhaps because of the recession, 
loss of jobs and so forth. It is sort of an easy throw to gain 
support for something that really ought not to be in the trade 
area.
    In addition, I would hope that even though persons were 
pleased that you could pass any bill on cap and trade or 
climate change and therefore exult really in the legislative 
success, I am not convinced that the impact upon CO2 or 
greenhouse gases is very substantial even over the long run of 
this, in part because so many compromises had to be made to 
draw one person after another across the line. So it is there, 
but maybe we better really try again.
    It is in that spirit that I listen carefully today, and I 
appreciate some thoughts that have arisen from this panel, one 
of which was that ag emits maybe 7 percent of the problem but 
could contain 25 percent under certain circumstances . That is 
truly remarkable. If American agriculture alone is able on a 
net basis to take care of 18 percent of the problem, that is a 
good bit more, I think, than the whole Waxman-Markey bill will 
be finally evaluated as. So we ought to listen carefully as to 
how that is going to occur.
    Now one of the ways that it occurs is, for instance, 
through the early actors guarantee that you have talked about, 
Mr. Johnson, and you have talked about, Mr. Pierce.
    Let me just admit that I have been intrigued by this issue 
for a while. As Chairman of the Foreign Relations Committee, we 
had hearings in 2005 and 2006, and you participated in one of 
those, Mr. Grumet. We appreciated that.
    Clear back when I was Chairman of the Agriculture 
Committee, in 2000, we had a hearing on this issue, a long time 
ago. One of the things that came from that was Chicago Climate 
Exchange testimony, and on one occasion I was asked by Mr. 
Sandor to become a client or a partner or what have you of the 
Exchange. So people came out to my farm and measured trees that 
had just been planted.
    Now here we have, of course, the problem of the early actor 
business. We have hundreds of acres of trees that had been 
planted, but they are off the reservation. Nonetheless, they 
were measured, and so I have been an active participant and 
looking at the web site of CCX almost every day. It is only 
about 55 cents a ton. Now I have had some good days. It was $7 
a ton back 2 or 3 years ago. It even got to four during the 
last climate change debate with Warner-Lieberman or what have 
you.
    So I have been appreciative of the National Farmers Union 
group coming for celebrations here, with the tree people and 
the no-till planting people, with the Farmers Union aggregated 
farmers.
    There are forestry groups now I am pleased to see, and you 
might comment about this, Mr. Pierce, that are prepared to do 
some aggregation of forest owners, the small people, the people 
that might not ever get the measurements or will get into an 
argument over early actors or all the rest of it.
    In other words, in order for ag to come into play, we 
really have to begin to think through the rules of the game so 
that people can participate. So I am storing tons of carbon in 
the trees that have been planted. I get a reading each year 
from CCX, and I am much interested in this. A lot of farmers in 
Indiana are too but feel cheated of the opportunity really to 
get in, in this respect.
    Now let me finally mention I think since a third of my farm 
is also in trees, a third in corn, a third in soybeans, I am 
interested in the fertilizer problem. You have touched upon 
this today, and we want to follow that very closely because 
this is a cost factor obviously for anybody who is in that 
business.
    But, at the end of the day, this could be a very 
constructive Committee because we may be able to solve a good 
part of whatever the climate change problem is without arguing 
the cosmic issues of whether there is a big problem, a small 
problem, one now or here, and do constructive things.
    I just want to ask you, Mr. Pierce, for an additional bit 
of testimony. How would you go about, in the early actor 
business, of using either of our two great farm organizations 
if they were to aggregate people? And, maybe that is not a good 
idea, but how do we get forest owners, all these hundreds of 
thousands and what have you that you have mentioned into the 
ball game?
    Mr. Pierce. Well, the American Forest Foundation has two 
pilot programs right now which are trading carbon credits on 
the CCX. So there is aggregation going on.
    We need to have any program administered and the rules 
written by the USDA. They are the people we trust. As one-third 
of your farm is in trees, it is more like 95 percent of my 
farm. But I still farm about 35 acres, and I deal with USDA. 
You know they are down the street, so to speak.
    We need flexibility. We need flexibility as to areas of the 
Country being treated differently. There are different 
practices that would sequester carbon in different areas of the 
Country.
    We need flexibility in length of contract because family 
forest owners want to have a length of contract that is 
comfortable for them. I have heard of very long contracts that 
would go beyond my lifetime. I cannot commit to what my son's 
practice will be.
    Yes, we need to reward the early actors. I practice, I 
think, the best forestry that can be practiced in Maine, and I 
do not think I should be left out of the program.
    Senator Lugar. My time is about concluded, but let me just 
add one sort of editorial comment. A mention has been made 
because frequently it is sort of dragged into this, that, by 
golly, if we do not act, why heaven help us because EPA will 
come into this and EPA with the Supreme Court ruling will take 
care of this.
    No, I think no one of us--there are 100 Senators--can set 
the law. But I would just say I believe I could get a majority 
of Senators to repeal whatever is in the EPA act to eliminate 
EPA out of this picture--the audacious idea that somehow or 
other we have to be pressed into this kind of legislation 
because somebody at EPA finds that things are askance. I am 
outraged by the measurements of corn ethanol being done by EPA 
using extraneous events, and the House bill tried to meet that, 
and I appreciate that fact. But it is outrageous.
    So I would just say that we would have another debate in 
another committee perhaps, dealing with EPA, but we ought to be 
dealing with agriculture in a very straightforward way.
    I thank you, Mr. Chairman, for giving us this opportunity.
    Chairman Harkin. Well, thank you, Senator Lugar. I remember 
when you started these hearings back when you were Chairman of 
this Committee. So you have always kind of been in the 
forefront of this sort of effort, not only on agriculture but 
on foreign relations, and I look forward to working with you 
and tapping into your expertise on how we as an agriculture 
committee move forward on this.
    As you know, I guess we made some kind of a tentative 
agreement. I do not know if it is tentative or actual, but we 
made an agreement that by September 28th that we would submit 
to the EPW our recommendations. So, hopefully, our staff and 
your staff can work together on this, with other members of the 
Committee of course.
    Now, Senator Stabenow.
    Senator Stabenow. Well, thank you very much, Mr. Chairman, 
for your leadership and welcome to all of the members that have 
joined us from very important perspectives and organizations.
    Let me just start by saying that it has been a pleasure to 
work with the Chairman, your staff and others in the last year 
since the subcommittee that I chair held a hearing on offsets 
when the previous bill was up before consideration. At that 
time, I began to really focus and understand how important an 
offsets program is and how important it is that agriculture be 
participating as part of the solution and benefit from anything 
that is done as it relates to a new clean energy policy. And 
so, everyone who has been involved in working with us and all 
the staff, we very much appreciate that.
    One of the things that struck out to me at the time was, 
and the numbers can vary a little, but EPA has said that 20 
percent of the greenhouse gas emissions in the U.S. can be 
sequestered in agriculture and forest lands. And so, whether 
that is 15, whether that is 20, whether that is 25, I think 
that is very significant and is something that certainly I know 
we as a Committee want to make sure happens from a positive 
standpoint.
    All of us struggle around the cost issues. Whether I am 
here with my agriculture hat or I am in other committees 
focused on manufacturing, my goal and I know other goals of 
colleagues is to make sure this is a net winner, not a loser, 
and it has to be in terms of the economy moving forward.
    I am struck, though, by a couple of studies, and the 
Chairman just talked about the USDA analysis. But Iowa State, 
and I would like for the record to say I graduated from 
Michigan State, Mr. Chairman, but Iowa State has suggested that 
the cost of corn will increase $4.52 per acre but with offsets 
the benefits would be $8 an acre. So that is what we want to 
have happen. If that in fact is accurate, that is the direction 
we want to go in.
    Also, Texas A&M agriculture researchers said that there 
could be a net profit benefit, a net increase in profits of as 
much as 24 percent after taking in consideration of additional 
costs.
    So, Mr. Chairman, I know that our goal is to make sure 
those numbers are the numbers that happen and that we are not 
in a situation where agriculture is hurt by this policy.
    I have a lot of questions, but, Mr. Grumet, let me start 
with you first. I think it is important to ask a question just 
in general. We have heard a lot about the Waxman-Markey 
legislation and whether or not it will make a difference in 
climate change. I mean does that bill make a difference? Is it 
worth building on that?
    Mr. Grumet. Well, Senator Stabenow, I think it is fair to 
understand that action of the House and action that the Senate 
could take is going to be heroically important to the global 
process. I think Administrator Jackson's quote has been 
referred to a few different times, that U.S. action alone is 
not going to make a significant ecological difference in global 
temperature, and that is, I think, so profoundly obvious it is 
not clear to me why people think it is a gotcha point.
    We live in a global commons, and the question we have to 
ask ourselves is what role do we see the United States playing 
in that arrangement? Unilateral action by the United States 
will not solve terrorism. It will not solve world hunger. It 
will not prevent nuclear proliferation, and it will not prevent 
climate change because these are collective action problems.
    In 1992, the first President Bush went to the Rio Accords 
and identified, I think, the right answer which is the notion 
of differentiated commitments, that the U.S. has an obligation 
and an opportunity to lead but that we should not be chumps. We 
should not take steps three, four and five without recognizing 
that the rest of the world is going to have to come with us.
    So, the challenge for us is to design a program which, as 
you point out, capitalizes on the incredible opportunities for 
agriculture. The opportunities are in fact bigger than the 
risks. So, if we capture those opportunities, we put together a 
program which is good for U.S. agriculture on its merits, but 
it brings us back into a very different position in the global 
arrangement.
    Dr. Holdren will be with you later today. He has come back 
from China recently. I would encourage you to ask his ideas 
about this.
    But, again, the situation is much more complex than I think 
some would like us to believe. I have not heard China say, we 
do not care about climate change and we never plan to be part 
of that solution.
    The Chinese are nothing if not practical. They have four 
times the population that we have on two thirds of the arable 
land and much less ability to manage the hydro flows from the 
snow melt than we do. They recognize that they are in very 
significant jeopardy from the impacts on climate change.
    They also are terrific in appreciating markets. As their 
major clients in Europe and the United States, as major 
consumers like Wal-Mart and others start to identify 
sustainability standards, the markets for these products are 
going to shift, and the Chinese pay very close attention to 
that.
    The Chinese recognize that they are in a more insecure 
position vis-a-vis oil dependence than we are in the United 
States, and they recognize that, just as we do, the vast 
majority of actions that we take to address our greenhouse gas 
emissions will also diversify our energy supply and make us and 
them more secure.
    They recognize that modernization--the point that Senator 
Johanns and others made earlier, that to have a more efficient 
economy you produce more goods for less carbon--is also 
consonant with their long-term interests. So they have passed 
vehicle fuel economy standards which are more aggressive than 
we have. They have energy efficiency and renewables programs 
that are more aggressive than we have.
    I do not want to imply that it is going to be easy to 
convince the Chinese to come with us; it is clear that this is 
a great problem. We are a great Nation, and great nations take 
steps to solve those great problems. I believe if we do lead we 
can count on the Chinese to follow.
    Senator Stabenow. Thank you. I want to get in one other 
quick question. I do want to say, though, that enforcing those, 
it is great to have it on paper with China, but we have to make 
sure that that is enforced if it is going to work.
    Regarding early actors and one of the things that we have 
been working on in language is not only an offsets program but 
what I think is really important, which is a USDA incentive and 
support program so that there would be set aside allowances 
from the cap that would relate to USDA activity, to help both 
fund early actors who have built up carbon stockpiles and fund 
emission reduction projects and for those that are looking for 
new opportunities.
    There are some areas, certainly of agriculture currently 
now, that would net benefit from this. And, how do we make sure 
that we do research and development and have new opportunities 
that maybe are not currently available made available for 
certain sections of agriculture?
    My question, I guess I would address it to you as I close 
the first round: Does it matter at this point, as it relates to 
early actors, whether we are rewarding them through the offsets 
program or through an allowance set-aside program at this 
point?
    Mr. Grumet. Thank you, Senator.
    I think it does matter, and I commend you for your efforts 
there and also will acknowledge that your conclusions are very 
consistent with the conclusions that Senators Dole and Daschle 
reached on our behalf.
    The traditional offsets approach is, by design, a very 
rigid approach. You are either 100 percent right or you are 
flawed. On issues such as early action and additionality, it 
draws out these kind of philosophical questions about what 
would have happened otherwise, and it does create, as a number 
of panelists have mentioned, some tricky perverse incentives.
    If you try to, and I will use a technical term, ``jam'' 
those ideas into a traditional offsets program, you run a real 
risk of diminishing the credibility and integrity of that 
program. And so, one of the concerns that we have, one of the 
necessities of having this alternative pathway is not to 
undermine the public confidence in the traditional offsets 
program because there are a host of activities--flaring, 
capturing and flaring methane and other programs--which are 
easy to discern, to measure, and those can move through the 
system quickly, and they should be unlimited.
    But we do need to have this creative space where we can be 
a little bit more innovative and a little bit more 
experimental, where we can look at the glass being half full 
more than half empty. Taking credits and having a set-aside 
program to do that, I think, will enable us to have the 
learning to get the momentum behind this program that we need. 
I think we have a real concern that absent that program we will 
not realize the full potential as quickly as we need to.
    The last point I will make is that it is within that 
program that I think there is tremendous opportunity for real 
collaboration between EPA and USDA. Where we are going to have 
fights is over that last 5 percent, and I think that will 
really undermine the spirit of this entire enterprise.
    The idea of a kind of a separate but equal offsets program 
with EPA having its own program and USDA having its own program 
is not likely to create the kind of cordial comity and shared 
interests that we are ultimately going to need. I think that 
reinforces the divisiveness, and I think that would be a 
problem in the long term for the agricultural offsets program.
    Senator Stabenow. Thank you, Mr. Chairman.
    Chairman Harkin. Thank you, Senator Stabenow.
    Senator Roberts.
    Senator Roberts. Thank you, Mr. Chairman, and I especially 
want to thank you for holding these hearings. I know we are 
going to have a second round. I know we are going to have 
testimony from the Administration, both EPA and the USDA this 
afternoon, and that is a very good thing.
    I would urge you, sir, and I am going to plead with you to 
have more hearings on this bill. I think Senator Lugar made a 
very good point. We can be part of the answer, not part of the 
challenge, in trying to take the best aspects of this bill if 
that can be done. I have some concern about that, but we will 
have to do it with hearings like this. This is the first 
hearing, and I certainly commend you for it and look forward to 
the hearings this afternoon.
    I would just like to tell my colleagues and anybody else 
interested that some years ago, several years after the Senate 
voted 97 to nothing against joining the Kyoto agreement mainly 
because other countries were not taking part and we thought it 
would harm the U.S. economy, we went to Antarctica on a CODEL. 
Senator Stevens led the effort because he had such a strong 
interest in it.
    During that particular visit, you can actually look at the 
ice corridors. Some people call them ice holes. But there is 
9,000 feet of ice there until you hit ground, and you can 
determine. It is like rings in a tree, Mr. Chairman, where you 
can actually see there has been global warming. Now whether it 
is temporary, whether it is an aberration or whatever, that is 
still to be decided.
    But, basically, the decision was to come back and see if we 
could not be on the positive side of this, more especially in 
regards to agriculture. I know I met with Secretary Glickman 
who was a good friend from Kansas. We even had a press 
conference down on the Mall where finally I told the Washington 
Post that carbon in the air, bad, carbon in the soil, good, and 
that is what carbon sequestration meant.
    I know all of you here certainly understand that. So I 
would hope we could have additional hearings.
    Mr. Johnson, I agree with you that the USDA must be very 
aggressive to take this jurisdiction, to take the lead. I am 
sure Mr. Stallman agrees with that.
    I am not making this up, but we have had reports of the EPA 
and some people in the EPA of resurrecting the old problem of 
rural fugitive dust which came along in the 1970's. They 
recommended we have water trucks going out at 10 in the morning 
and 2 in the afternoon to get this dust down.
    I am not making this up. There is even a proposal to study 
the ramification of changing the genes in cattle, so you have 
cattle half size, half-size cattle. So I guess if you head them 
up and move them out, you will have twice as many, but you will 
still have a lot of dust and will still have a lot of problems.
    Now I am being a little sarcastic, but things like that do 
happen with the EPA, and we need to keep it in the USDA's 
jurisdiction.
    I would like to associate myself with the remarks of 
Senator Chambliss who I think made a very good point, Senator 
Grassley who talked earlier, certainly the Chairman and 
certainly Mr. Stallman. It is good to see you back in the 
saddle. We have a tremendous challenge on our hands, and all of 
our farm organizations including the Farmers Union.
    Mr. Chairman, I think the USDA has to have more resources. 
We have people working on the Farm Bill, people working on 
trying to finalize the software that does not exist for the 
permanent disaster program, and they are working with pencils 
and, thankfully, they have erasers.
    Here we are now going to come in and need to implement this 
tremendous program and see what cropping practices are viable, 
what cropping practices make sense, what cropping practices are 
eligible, and then the great question of whether we mandate 
this or not. So I really look forward to this, and I think that 
the Ag Committee under your very capable leadership, sir, can 
play a big part.
    Mr. Stallman, in your testimony, you highlight the 
potential conflicts of the proposed cap and trade scheme and 
our trade obligations, and we have talked about that. If 
passed, would the United States be more vulnerable to 
challenges before the WTO? That answer to me is yes.
    If so, is it possible that the very countries that are 
major contributors of global greenhouse gases would initiate 
these challenges? And, I am talking about China.
    Mr. Stallman. We believe they would. In fact, India has 
already said as much. China has already talked about what 
border tariff barriers would mean to them and how they dislike 
them. We expect a full range of challenges of those kind of 
border measures that are included in Waxman-Markey and may be 
further included here in the Senate.
    You know what we have done is have the bill in the form of 
Waxman-Markey that puts energy costs on this Country and this 
Country alone. That makes us less competitive. And then, we try 
to flip around and figure out how to protect our industries, 
the trade in the international market. It is like we are trying 
to do two wrongs to make a right, and it is just we do not 
believe it is going to work.
    Senator Roberts. Thank you for that answer. I think it is a 
very common-sense answer and very candid.
    I do not see the value of putting a tariff on any Chinese 
product. My word, former Chairman Greenspan, talked before one 
of our conferences and indicated he thought we were at a 
tipping point with the economy. By that, he meant China would 
not buy our bonds, our paper, and then interest rates would go 
up to the point that it would make it more attractive.
    If you put a tariff on China, Senator Smoot and Senator 
Hawley might vote for it, but I think that is very dangerous.
    Mr. Johnson, your testimony states that carbon credit 
income potential is significant for your members.
    The effects of this bill worry me that while all producers 
will have to pay more for input costs, not all producers will 
receive any offsetting income since not all producers can go to 
a no-till operation or plant trees or afford two to three 
million dollars for a digester. So my question to you is will 
not this bill create winners and losers among your members? 
That is the thing we have to determine in this Committee.
    What regional or crop-specific analysis has the Farmers 
Union done to determine which producers win and which producers 
lose?
    Mr. Stallman, you can answer that question too.
    Mr. Johnson. Well, Senator Roberts, thanks for the 
question.
    As I indicated earlier, we have not done a separate 
analysis. We have looked at a lot of the analyses that others 
have done.
    Clearly, I mean any time you pass legislation, you create 
winners and losers. I do not think there is any other way to 
look at it. I mean there will be some farmers who will be in a 
very strong position. They will have the opportunity to do lots 
of offset income, and there will be others that will have 
minimal opportunity, so will face increased costs. I really do 
not think there is much debate about that.
    I would suggest that maybe the best way to look at that is 
to dig into the bowels of the economic think tanks, the USDA 
study that apparently was just released and try and figure out 
who those winners and losers are. That is one of the reasons 
why we argue that you need to set aside a chunk of these 
allowances so that if you need to design a practice to 
compensate some of the losers you can do that with those 
monies, without making them overburdened.
    Finally, this question about China is a real intriguing 
question. Fundamentally, it is why many of us have argued in 
the trade arena that we need to have environmental standards 
and labor standards and others, those kinds of things 
negotiated as part of the trade agreement.
    I think we would all agree that it is not fair competition 
to have one country producing things and externalizing a lot of 
the costs of production by dumping them on the rest of either 
their society or, in the case of greenhouse gases, the world 
while other countries follow the rules and have higher costs. 
So that, I mean this is a more a trade issue than it is a 
greenhouse gas issue.
    Senator Roberts. Well, pardon the interruption. My time has 
run out.
    Mr. Stallman, do you have any other comment real quickly?
    Mr. Stallman. Quickly, on that particularly, in terms of 
international negotiations including labor and environment, I 
cannot wait until we have the EU standards imposed on us as a 
Country because that is what we are talking about if you are 
talk about international standards. So we would oppose that 
approach.
    Offsets, the price that farmers get, as that price goes up 
for those offsets, a limited group of farmers, that also means 
the cost of energy is going up for all farmers.
    Senator Roberts. I have never quite understood why we 
cannot settle the labor or try to settle the labor problems 
that are challenges we have with other countries, more 
especially China, with the International Labor Organization, 
the ILO, rather than putting in some kind of trade agreement. 
The chances of China accepting a trade agreement by us 
dictating certain standards for their labor decisions are slim 
and none, and slim left town.
    Chairman Harkin. Thank you very much. Thank you, Senator 
Roberts.
    Senator Klobuchar.
    Senator Klobuchar. Thank you very much, Chairman Harkin, 
and thank you to our distinguished witnesses for being here.
    I want to first of all say that I would agree with the 
Chairman that we need to make some additional changes to this 
bill.
    Agriculture is incredibly important to my State, the fifth 
in the Country. We are the No. 3 hog producer, a major producer 
of corn and soybeans, wheat, sugar beets and, of course, No. 1 
in turkeys. So a lot of my focus in this area has been jobs in 
the ag area and energy jobs and introducing renewable energy 
standards that include waste energy and allow our farmers to 
have a piece of the action, and I actually think that has 
benefited in our State.
    As you know, Mr. Johnson and Mr. Stallman, that we have a 
gross renewable energy standard, but we also have a very 
aggressive biofuels program. I think part of why some of these 
energy issues have been more bipartisan in our State is that 
people feel that they have a piece of the action, that they are 
going to profit from some of these energy jobs, that it is not 
just about people on Wall Street or somewhere else. So that is 
why I appreciated all of your comments here.
    I first wanted to start with the ethanol blend issue, that 
this is a possibility that we could do this with this bill. I 
see homegrown biofuels as a piece in a lot of the future here. 
I think that the way to do it may be with higher blend amounts 
to go up to, say, 15 percent, and I do not see why we could not 
do this as part of this bill. I think it has been taking too 
long at the EPA. I also see our growth into cellulosic ethanol 
is a much bigger way that we can produce ethanol.
    But I wondered, Mr. Johnson, Mr. Stallman, if you could 
comment on that.
    Mr. Johnson. We would certainly support that.
    Senator Klobuchar. OK. Mr. Stallman?
    Mr. Stallman. As would we.
    Senator Klobuchar. All right, very good. Thank you for 
going on, so I can now go to my next question on that.
    Mr. Johnson, you talked about making the case for 
allocating some of the allowances. What criteria do you suggest 
using to determine eligibility for those allowances?
    Mr. Johnson. Well, that is a really good question, Senator 
Klobuchar, and I think it is helpful to think of this in the 
context of offsets. OK?
    We heard earlier testimony about the importance of 
maintaining the integrity of offsets. While I agree with that, 
I would also want your Committee to think very closely about 
how you distribute the revenues. OK?
    Our view is that under this bill USDA should be put in 
charge of the offsets program. They should the empanel the 
scientific experts who establish the protocols. And then, they 
should have their delivery agencies, the ones that are close to 
the farmers and ranchers, that are out there verifying and 
monitoring and perhaps auditing to make sure that the rules are 
being followed.
    But, as far as the distribution of money, they do not need 
to be involved in that with offsets. That can be handled 
through the marketplace just like the CCX is doing it right 
now. Aggregators do it, I would argue, much, much more 
efficiently.
    Now that does not sound like it answers your question, but 
the problem is this: When you try to mirror offsets with these 
allowances and run them through USDA, I think you need to think 
creatively about whether there is not a methodology that would 
allow you to get those payments that are made through the 
market system as opposed to having these folks with pencils and 
erasers having to write out checks now too.
    We are real concerned about adding to the bureaucracy at 
USDA. It is overstretched. It is strained. It is under enormous 
pressure. So we want to minimize that to the degree that we 
can.
    It is a long way of answering your question, but, 
fundamentally, we want these allowance dollars to be used for a 
number of things. To deal with the early actors, that gets to 
all the stuff I have said about offsets. OK? So, as closely as 
you can mirror what the offset market is, that is what you want 
to do with the early actors, using these allowances dollars for 
the folks that do not technically qualify for an offset. OK?
    We want you to use these dollars for R&D. We think there is 
tremendous opportunity through new technologies to demonstrate 
that agriculture will significantly reduce the emissions, but 
we need to research and develop it and establish with 
scientific certainty, to the degree that those two words go 
together, that in fact what we are doing makes sense so that 
you can roll these new things onto the options market and 
provide new income opportunities as well. So, R&D is really 
critically important.
    Of course, anything that provides a perverse incentive to 
do the kinds of things that the Chairman has worked for most of 
his career to avoid, any of those kinds of things that are 
identified in this process, hopefully, you create some sort of 
a mechanism to eliminate them.
    Senator Klobuchar. OK. I assume by your comments and Mr. 
Stallman as well, just knowing your previous views on this, 
that, paperwork or not, you both would rather have the USDA 
doing this rather than the EPA with the agricultural offsets?
    Mr. Stallman. Absolutely, no question, USDA is well 
positioned to handle this. Much better positioned than the EPA, 
I might add. I would associate myself with the remarks my 
colleague has made about what we need to have USDA be able to 
do to be sure that we have an adequate offsets program.
    Senator Klobuchar. OK. Thank you very much.
    Mr. Pierce, part of this new energy potential is biomass 
from logging. Do you want to comment on that when we look at 
renewable standards and making sure that we include that as a 
piece of this?
    Mr. Pierce. Well, I certainly hope that. Speaking as a tree 
farmer, I certainly hope that we do include biomass. It is very 
important to support the low end of the market in order to have 
good forestry done.
    Senator Klobuchar. OK, very good. Thank you to our panel. I 
really appreciate your answers.
    I am looking forward to working with the Chairman and with 
my good friend, Collin Peterson, who worked hard to make some 
improvements to this bill. He just left me a message about a 
totally unrelated matter, but I will continue to work with him.
    Thank you.
    Chairman Harkin. Thank you very much, Senator Klobuchar.
    Senator Lincoln.
    Senator Lincoln. Thank you, Mr. Chairman, and thanks to you 
and Senator Chambliss for holding the hearing today, getting us 
started on this.
    We all recognize that cap and trade would really touch 
nearly every aspect of our lives, and that is especially true 
for agriculture. We discussed at great length that there is 
potential for landowners to benefit by tapping new revenue 
streams, through implementing practices that reduce greenhouse 
gas emissions.
    But it is also very, very likely that farmers will face 
higher costs for input like fertilizer and fuel, and it 
certainly poses a challenge, I think, for Arkansas producers 
that farm capital-intensive crops like cotton and rice. Our 
poultry, livestock and dairy producers could also grapple with 
those increases in energy costs, but they too could potentially 
take advantage of some of these programs we are talking about.
    The purpose of these hearings and future hearings, I hope, 
is really to flesh out the costs and the benefits of a cap and 
trade bill for agriculture and explore how the Senate can 
improve upon what the House has done.
    What is so badly needed in this debate is more detailed 
economic analysis on a crop-by-crop, industry-by-industry and 
regional basis. I do understand from the pieces you presented 
us today, Mr. Chairman, the preliminary analysis that has been 
provided by USDA this morning does provide us some of that 
analysis.
    But I do believe we need to take a broader look at how it 
will impact obviously our producers but also impact food 
prices. I hope that we will look for all of that information. 
It is going to require delving into how the House bill is going 
to impact the food processing industry, which includes sectors 
like poultry, meat, and oil seed processing. I just hope, as 
Senator Roberts mentioned, that the Chairman will consider 
holding more hearings to be able to look at that, and we 
certainly appreciate your leadership and all of what you have 
been doing here.
    Just three quick questions, and I think I will throw them 
out there and let you all answer them as you may.
    We have talked a lot about early action and credits for 
early action. Some of you all have mentioned flexibility and 
the need for that flexibility. I do not want to assume what you 
are saying from that. I hope it is, but I am not going to 
assume it.
    We also know that there is flexibility through different 
types of programs that are recognized.
    In the House bill, there is some confusing language about 
early actors and their offsets, whether they will count unless 
they are registered with an exchange that is recognized under 
State law. As I said, I do not want to assume anything, but I 
hope it is that we are looking that, for us, most of our 
producers and our foresters are going to be out of luck under 
that House bill because the programs they use, like Senator 
Lugar, the CCX, would not qualify.
    I am assuming that we are hoping that when you say 
flexibility you mean that multiple programs will be acceptable 
as opposed to those that are just registered under States. But, 
again, I do not want to assume anything. So I hope that you all 
will touch on that.
    Mr. Pierce, in terms of the strategy to address climate 
change and how it has been shifting to increasing use of 
renewable energy. Biomass, forest biomass in the production of 
electricity and fuels is, I think, critical. Do you think that 
the House-passed bill fully captures the potential use of 
forest biomass from private forests?
    Of course, private and public forests are treated 
completely or pretty differently in the House bill, and I would 
like you comments on that.
    Then last, Mr. Grumet, one of the concerns I am hearing 
from constituents is the fear that a cap and trade scheme would 
create yet another market where there is opportunity for 
mischief. I am hoping that you can elaborate on how the 
Bipartisan Policy Center believes Congress could be most 
effective in ensuring transparency in the cap and trade market.
    I noticed in your testimony that you quoted limiting ``the 
risk that credit-trading will lead to the enrichment of Wall 
Street at the expense of Main Street.'' We have been there. We 
have done that. We do not want to go there again.
    So I would love your comments on either of those three.
    Mr. Johnson. Well, I will start and be very brief because I 
have talked a fair amount. As to the question relative to 
offsets and flexibility, we would certainly agree with the 
assumption that you stated as you asked the question.
    We do not necessarily think that the only early actors that 
ought to be compensated are those that have already enrolled in 
the CCX program. In fact, we would disagree with that. We have 
argued that you ought to use a baseline of 2001. There are lots 
of reasons you can pick that year. It is arbitrary, I 
understand. Then any changes that have happened since then 
would be presumed to be additional.
    Senator Lincoln. Any changes since 2001?
    Mr. Johnson. Yes. That has been the position that many of 
us in a number of different ag groups have sort of settled on 
that. There are reasons for it. I mean that is the Kyoto thing 
was happening, the Farm Bill. There are lots of things that 
lined up that suggested that that is a date.
    Right after that date, the CCX was formed. It was sort of 
formed in anticipation of a law passing, and so you can say: 
Well, let's figure out how to not penalize those guys. Let's 
reward them.
    Mr. Grumet. Senator, I can just pick up on that, unless you 
want to go in order.
    Senator Lincoln. No. That is fine.
    Mr. Grumet. The duel track approach, this is really the 
same question that Senator Klobuchar and others were asking, 
and how we bring flexibility into the system. Then, just again, 
focus on the fact that the traditional offset approach is a 
brittle approach, and it needs to be because if there were 
flaws in the system we would be adding more pollution to the 
atmosphere than we would be reducing.
    The need to have this alternative use of allowances, to 
provide kind of insurance for that, provides a tremendous 
amount of flexibility across the line here. It allows people to 
be a little bit more innovative, a little bit more creative and 
a little bit more risk-taking. That is true for early action 
because you have a ton as an insurance policy against those 
approaches. It is true for flexibility and diversity in program 
choices.
    What I would hope the USDA would say when they visited the 
Lugar Farm is: Great work on those black chestnuts, Senator. 
Those are measurable, and we have a protocol, and those just 
go. We do not have to touch them. The marketplace is going to 
decide that.
    But you know you are also doing this interesting job, doing 
some no-till farming and some nutrient management, and this is 
a very creative idea. It is a little harder to figure out. You 
can go two ways. You can either hunker down with USDA and spend 
a bit of time and money really sharpening your pencils and 
trying to prove the value of your work or we have this other 
alternative, a place where you can come do more kind of 
creative programs because essentially there is an insurance 
policy behind them.
    USDA could essentially provide credits that would otherwise 
turn into emissions elsewhere to Senator Lugar and his family 
for their good work.
    I wonder if you have looked at the price of your credits 
before and after this hearing to see what kind of impact we 
have had on the marketplace today.
    But it does seem to me that that kind of flexibility is 
significant and important to get this program up and running so 
that we do not spend our time biting our nails and gritting our 
teeth on the tiny details.
    While I have the mic, just on this very important and 
complicated question of market oversight, it is certainly true 
that coming to visit folks like you and saying: Senator, do I 
have a deal for you? We would like to create a new $200 billion 
commodity. Not to worry, the good people in New York City are 
going to figure it out--is not as popular an opening statement 
as it might have been a couple of years ago.
    At the same time, it is critically important that we have a 
functioning market, and there are really two options here. The 
one that we believe is the right one is to think about the 
carbon commodity as part of the overall struggle we are now 
having to bring more transparency to derivatives at large. 
There is really no difference ultimately between what we do 
here with carbon and what we do with other financial products.
    Rather than trying to put a little bit of an obstacle in 
every possible pathway for nefarious action, we think if you 
have good cost containment, if you have a price floor and a 
price ceiling that limits the volatility, it allows you to 
exhale a little bit. It dramatically reduces the possibility of 
that enrichment so that we can learn our way into this market 
with low risk. It is essentially a set of training wheels on 
the program.
    I fear if we go the other direction and try to pin down 
every possible problem we will stifle the market to such an 
extent that we will not have investment in these clean 
technologies.
    So I do not think people see cost containment traditionally 
as a benefit to this kind of market oversight, but I think one 
of the best advantages you get is you reduce the volatility 
which consumers hate, elected officials hate and Wall Street 
sometimes enjoys.
    Senator Lincoln. You are saying a cap and a floor as 
opposed to just a cap.
    Mr. Grumet. A cap and a floor, a price collar.
    Senator Lincoln. Oh, just a floor, OK.
    Mr. Stallman. Senator, if I could still have a little 
additional time to respond, we would support maximum 
flexibility for the early actors.
    But let me get down to the point that Mr. Grumet made 
earlier about mitigating the negative impacts about 
implementation of a carbon market. One way to do that which has 
not been discussed, since that carbon market is going to be 
driven by the cost of energy, is to have an off-ramp in the 
legislation in case the renewable low carbon fuels and 
generation of electricity through nuclear, solar or wind do not 
come online as quickly as the predictions have indicated, to 
point out some of the rosy scenarios in terms of the Waxman-
Markey bill.
    There should be an off-ramp provision where if those 
sources do not come online as quickly as project, then we 
should string out or mitigate the implementation of the carbon 
reductions--so, kind of have a trigger, if you will, to keep 
everyone honest in terms of projections about what will 
ultimately happen under the Waxman-Markey bill.
    Chairman Harkin. Thank you. We are in a vote now, and the 
second bells have rung on our vote.
    I think it is clear this has been a good panel. I 
appreciate all the testimony.
    It is clear that we are probably going to have to have some 
more hearings on this. I will begin consulting with other 
members of the Committee on that.
    As I said, this afternoon, we will have the Administration 
witnesses.
    I thought I just might conclude with what Mr. Grumet said 
in his closing. He said, ``While we can all agree that U.S. 
action alone cannot solve a global problem, it is equally true 
that we have no hope of securing effective and equitable global 
action absent U.S. leadership.'' I think that really is the 
key.
    Now we have this meeting in Copenhagen in December. The 
President would like to have us pass some legislation prior to 
that time. I understand on the Senate floor we were asked to 
give our input by September 28th. That is why we will probably 
have some more hearings on this. But we do have to provide that 
leadership.
    But, taking off on what Mr. Stallman just said, I have 
often thought of an off-ramp, not the off-ramp that you 
described in terms of what happens if we do not get the 
technologies, but if we put in place a good cap and trade 
system that incorporates agriculture, gives adequate offsets 
and allowances to agriculture, and we go to Copenhagen and we 
start down this road, if other countries do not join us, if 
India and China and all these other countries we hear about do 
not join in on this effort, then we have an off-ramp. That is 
the off-ramp I am thinking of.
    We provide the leadership. We say this is what we are going 
to do. We are going to be very aggressive in this, in the 
United States. We are going to push as hard as we can for clean 
renewable energy resources, but we want other countries to come 
in. If you do not, well, we are off the highway.
    With that, the Committee will stand adjourned.
    Oh, excuse me. I am sorry.
    Senator Chambliss. Let's leave the record open. I have some 
other questions, and other members may have to.
    Chairman Harkin. Good suggestion. Oh, thank you. Thank you, 
Senator Chambliss.
    We will leave the record open for other comments and 
testimony or other comments from members of the Committee and 
also if we have some written questions that we would like to 
maybe submit to you. I did not ask all my questions in either. 
Perhaps, we would like to do that.
    We do look forward to your engagement in this process as we 
move ahead over the next couple or 3 months.
    Thank you very much. We will resume our sitting at 2:30 
here in this room.
    [Whereupon, at 12:11 p.m., the Committee recessed and 
reconvened at 2:36 p.m.]
    Chairman Harkin. The Senate Committee on Agriculture, 
Nutrition and Forestry will resume its sitting from this 
morning, and we had a great discussion this morning. We had a 
good panel this morning and a good discussion, a lot of 
pertinent questions.
    This afternoon, we are honored to have three distinguished 
individuals, all of whom I think have a lot of expertise in 
this area. That is the area of agriculture and the environment, 
climate change and how it is going to impact agriculture and 
the role that agriculture can play both in reducing greenhouse 
gas emissions but also the role it can play in offsets, in 
carbon sequestration.
    So we are continuing our hearing today, and we are honored 
to have the Secretary of Agriculture, Secretary Tom Vilsack, 
who was sworn as the 30th Secretary of the U.S. Department of 
Agriculture this year. Appointed by President Barack Obama, he 
received unanimous support for his confirmation by both this 
Committee and the entire U.S. Senate.
    Secretary Vilsack has served in the public sector at nearly 
every level of government. When I first met him, he was the 
Mayor of Mount Pleasant, Iowa, in 1987 and then as a State 
Senator in the Iowa Senate, and then in 1998 he was the first 
Democrat elected Governor of Iowa in more than 30 years, an 
office he held for 2 terms.
    As Secretary of Agriculture, Secretary Vilsack has been 
candid and direct about the challenges and opportunities facing 
farmers and ranchers across America and the importance of 
fulfilling the vast missions as a champion of rural America and 
as a steward of the environment. So we are honored to have him 
here.
    Also, we have EPA Administrator Lisa Jackson, again 
nominated to lead the Agency by President Obama and confirmed 
by the Senate in January. Administrator Jackson lists among her 
priorities: reducing greenhouse gas emissions, improving air 
quality, managing chemical risk and cleaning up hazardous waste 
sites and protecting America's water.
    Before becoming EPA's Administrator, Administrator Jackson 
served as Chief of Staff to New Jersey Governor Jon S. Corzine, 
a former member of the U.S. Senate. Prior to that, she was 
appointed by Governor Corzine to be Commissioner of the State's 
Department of Environmental Protection in 2006.
    We have Dr. John Holdren, Assistant to the President for 
Science and Technology and Director of the White House Office 
of Science and Technology Policy. Prior to joining the 
Administration, Dr. Holdren was the Teresa and John Heinz 
Professor of Environmental Policy and Director of the Program 
on Science, Technology and Public Policy at Harvard 
University's Kennedy School of Government as well as a 
professor in Harvard's Department of Earth and Planetary 
Sciences and Director of the Woods Hole Research Center.
    Well, we are honored to have you here.
    This morning, we had a good discussion. I will point out, I 
will just bring up the chart that I started my comments with 
this morning on, one, we have to do something.
    But this chart basically just shows we have to do 
something. This goes back to 1880, and it shows the global 
temperatures here and what has happened. We know that the 10 
warmest years on record occurred in the past 12 years. People 
always say, well, gee, I had a cool summer. Well, those little 
odds and ends happen. The fact is no one can deny that the 
Earth is heating up at a rapid pace.
    Also, the concentration of CO2 corresponds directly with 
that, and it is going up at an ever increasing rate.
    So to do nothing is not an option, and there are some 
concerns about the role of the United States and whether we 
should do it. And. what about other countries? What about 
China? What about India? What about Brazil? What about the 
European Union?
    We cannot do it all by ourselves. We cannot really bend 
that curve down if only we do it, but other countries have to 
be involved also. And so, that is, I think, one of the 
challenges facing us. How do we provide that leadership but 
then how do we get other countries onboard also to help us?
    That is sort of the big picture, but the picture we are 
concerned with here is the role of agriculture, our farmers and 
ranchers in this country and how we are going to be involved, 
how they are going to be involved in this process.
    The House has passed its bill. This Committee will be 
holding other hearings on this, and we will be involved with 
the Environment and Public Works Committee in the Senate 
beginning at the end of September and into October and probably 
November in fashioning a bill. I know the President wants 
something out of Congress before the Copenhagen meetings in 
December, and we will do our darnedest to try to meet that 
deadline, and the goal of the President is to get something 
done.
    But we want to know, what is the role of agriculture? What 
is going to happen to farmers and ranchers? We hear a lot of 
estimates on cost, how much the costs are going to go up.
    Secretary Vilsack, I know, will talk about this. We just 
got the analysis from your Department this morning that is a 
little bit different than what we have been hearing out there.
    Then, what role we can play in the environment and with EPA 
in agriculture and how we can work together both to meet the 
goals of decreasing our greenhouse gas emissions but also 
becoming more energy independent in this country--we have those 
two goals. And, what is the role of agriculture?
    With that, I would recognize my good friend and our 
distinguished Secretary of Agriculture. Thank you again for 
being here.
    All of your written testimonies will be made a part of the 
record in their entirety. If you could sum it up in seven or 
eight, 9 minutes, something like that, I would appreciate it. 
We will start with Secretary Vilsack, go to Administrator 
Jackson and then Dr. Holdren.
    Secretary Vilsack.

 STATEMENT OF HON. TOM VILSACK, SECRETARY OF AGRICULTURE, U.S. 
                   DEPARTMENT OF AGRICULTURE

    Secretary Vilsack. Thank you, Mr. Chairman, and to Senator 
Chambliss and other members of the Committee, thank you for 
this opportunity to discuss with you today the role of 
agriculture and forestry in global warming legislation and 
climate change legislation.
    Climate change, I believe, is one of the great challenges 
facing the United States and the world. President Obama 
believes it is important that America show international 
leadership on climate change. The Administration looks forward 
to working with the Senate to craft legislation that creates 
jobs, reduces our dependence on foreign oil, increases national 
security and reduces the risks associated with climate change.
    Climate change has enormous implications for farmers, 
ranchers and forest landowners. Drought, more intense weather 
events, forest fires and insect and disease outbreaks are just 
some of the potential effects of a warming climate that could 
subject landowners and rural communities to enormous potential 
costs.
    At the same time, farmers, ranchers and forest landowners 
have a very important role to play in addressing global 
warming. In fact, by effectively exploiting opportunities 
within the agriculture and forestry sectors, we can 
significantly reduce the cost of meeting our climate policy 
goals.
    I also believe that there are significant opportunities for 
landowners in a cap and trade program that can help revitalize 
rural America. The production of low carbon energy from 
biomass, anaerobic digesters and wind will provide landowners 
with new sources of revenue that have significant value in a 
low carbon economy. There are also options for landowners to 
reduce their energy expenditures. USDA is already working with 
landowners to reduce energy costs and to improve profitability.
    A robust carbon offsets market will also provide farmers, 
ranchers and forest landowners with the potential for new 
sources of income. Rural communities could in turn benefit from 
jobs created to implement conservation practices and measure 
and monitor carbon offset activities.
    To be effective in addressing climate change, the offsets 
market will need to accomplish two goals. First, the offsets 
market must be large, with thousands of participating 
landowners. To get to scale, the market will require an 
infrastructure of people and agencies that can encourage 
landowner participation, provide information to landowners, 
manage data and resources and maintain records and registries. 
Second, ensuring that agricultural and forest offsets provide 
real and verifiable greenhouse gas reductions is critical not 
only to addressing climate change but to maintain public 
confidence in the carbon offsets program as well.
    Implementing an offsets market will require a partnership 
of several Federal agencies including USDA, EPA, the Department 
of Interior and others. USDA has many assets that we can bring 
to bear, including a network of field staff across the country 
and greenhouse gas management experience with croplands, 
rangelands, forests and landscapes.
    Even with these opportunities, many in the agricultural and 
forestry community are concerned about the potential costs of 
climate change legislation. At USDA, we hear these concerns 
loud and clear.
    Now there are a variety of specific approaches that one can 
use to achieve clean energy and climate goals. Over the last 
several weeks, USDA has begun in analyzing costs and benefits 
of the House-passed climate legislation for agriculture. Our 
analysis demonstrates that the economic opportunities for 
farmers and ranchers can outpace, and perhaps significantly 
outpace the costs.
    An analysis of the implications of climate change 
legislation, including that of H.R. 2454, should show the farm 
sector will experience both costs and benefits. Agriculture, 
after all, is an energy-intensive sector with row crop 
production particularly affected by energy prices. Increases in 
fuel prices are expected to rise overall in connection with 
annual farm expenses by over $700 million between 2012 and 
2018, or about 0.3 percent. Annual net farm income as a result 
of those higher energy prices is expected to fall by about 1 
percent.
    However, these estimates assume that in the short term 
farmers are unable to make changes in the input mix in response 
to higher fuel prices--an unlikely scenario, given past 
history. So they likely overestimate the cost to farmers. We 
believe fertilizer prices will show little effect until 2025 
because of H.R. 2454's provision to help energy-intensive, 
trade-exposed industries mitigate the burden that emission caps 
would impose.
    The agricultural sector will also benefit directly from 
allowance revenues allocated to finance incentives for 
renewable energy and agriculture emission reductions during the 
first 5 years of H.R. 2454's cap and trade program. Funds for 
agricultural emissions reductions are estimated to range from 
an additional $75 million to $100 million annually from 2012 to 
2016.
    The conservative estimated impact of the cap and trade 
provisions of H.R. 2454 implies a decline of annual net farm 
income of $2.4 billion or roughly 3.5 percent in 2030, $4.9 
billion or 7.2 percent in 2048. These estimates are likely an 
upper bound on the costs because they fail to account for the 
farmers' ability to innovate in response to changes in the 
market conditions. This analysis is also conservative because 
it does not account for revenues to farmers from biomass 
production for bioenergy.
    A number of studies have examined the effects of higher 
energy costs with models that allow for the expected changes in 
production management practices and switching to bioenergy 
crops. Based on the analysis of Schneider and McCarl, for 
example, allowing for changes in input mix and revenues from 
biomass production, but without accounting for income from 
offsets, it is estimated that the annual net farm income would 
increase in 2030 by $600 million. By 2045, annual net farm 
income is estimated to increase by more than $2 billion or 2.9 
percent.
    Now H.R. 2454 also creates an offset market, and we think 
that will also create additional opportunities for the 
agricultural sector. In particular, our analysis indicates that 
annual net returns to farmers range from about $1 billion per 
year for the time period 2015 to 2020 to almost $15 billion to 
$20 billion in 2040 to 2050, not accounting for the costs of 
implementing offset practices.
    EPA has conducted its own analysis of returns from offsets 
that take into account the cost of implementing land management 
practices. EPA's analysis projects annual net returns to 
farmers of about $1 billion to $2 billion per year from 2012 to 
2018, rising $20 billion per year in 2050.
    It is important to note that EPA's analysis includes 
revenues generated from forest management offsets while the 
USDA estimate does not.
    So let me clear about this analysis and its implications. 
In the short term, the economic benefits to agriculture from 
cap and trade legislation will likely outweigh the costs. In 
the long term, the economic benefits from offset markets easily 
trump increased input costs.
    An economic analysis such as ours has limitations, but 
again we believe our analysis is conservative. It is quite 
possible that farmers will actually do even better than we 
predict as a result of technology changes and enhanced 
renewable energy markets.
    What does this mean for the individual farmer? A North 
Plains wheat producer, for example, might see an increase of 80 
cents per acre in costs of production by 2020 due to higher 
fuel prices. Based on a soil carbon sequestration rate of 0.4 
tons per acre and a carbon price of $16 per ton, a producer 
could mitigate those expenses by adopting no-till practices and 
earning $6.40 per acre. So this wheat farmer does better under 
the House-passed climate legislation than without it, and it is 
quite possible that this wheat farmer could do even better if 
technologies and markets progress in such a way that allows for 
the sale of wheat straw to make cellulosic ethanol.
    We recognize that climate legislation will affect different 
landowners in different ways. This is an important point, and 
USDA can help smooth this transition by using our Farm Bill 
conservation programs to assist landowners in adopting new 
technologies and stewardship practices. It is worth noting that 
the House bill also includes important provisions providing how 
to adapt and increase resiliency to climate change impacts, 
which will be important for our Nation's farmers, ranchers and 
forest landowners.
    Ensuring that landowners and communities have the tools and 
the information they need to adapt to climate change is a 
priority for this Administration, and USDA looks forward to 
working with you as we move forward.
    Thank you, Mr. Chairman.
    [The prepared statement of Secretary Vilsack can be found 
on page 119 in the appendix.]
    Chairman Harkin. Thank you very much, Mr. Secretary.
    Now we will turn to Administrator Jackson.

 STATEMENT OF LISA JACKSON, ADMINISTRATOR, U.S. ENVIRONMENTAL 
                       PROTECTION AGENCY

    Ms. Jackson. Thank you, Mr. Chairman. Thank you to Ranking 
Member Chambliss and members of the Committee for allowing me 
to testify today. It is a pleasure to appear alongside my 
colleagues, Secretary Vilsack and Dr. Holdren.
    As you know, the President has called for legislation to 
decrease our dependence on oil, to create millions of new jobs 
in clean energy industries and reduce the greenhouse-gas 
pollution that threatens our children and grandchildren. That 
call to action is as much about helping rural America as it is 
about helping urban America.
    For example, the bill the House passed in response to the 
President's call includes a program to help American auto 
makers produce vehicles that use less petroleum-based fuel. 
That program goes beyond the cars used in cities and suburbs to 
include the trucks and non-road vehicles used in farm and ranch 
country.
    The House bill also includes an incentive structure to 
catapult American companies forward in the burgeoning global 
market for clean energy technologies. Those American employers 
include not just the advanced battery manufacturer in 
Massachusetts and the solar panel installation firm in Arizona. 
They also include the wind tower manufacturer in Iowa, the 
biodiesel processor in Ohio and the bio-based insulation 
producer in Arkansas.
    Finally, I would note the recent report by the U.S. Global 
change Research Program. It projected the impacts that we would 
see in America over the course of this century if we allow 
global warming to continue unchecked. Those impacts would not 
be limited to the urban coast of South Florida and the arid 
hills of Southern California. The Great Plains would experience 
more sustained droughts and increased infestation of insect 
pests. The Southeast would experience declines in livestock 
production due to heat stress and more frequent and intense 
wildfires, and the Midwest would experience reductions in water 
levels in the Great Lakes, more frequent spring flooding and 
more severe summer drought.
    So, rural America is very much on the President's mind as 
he urges Congress to send him a bill that gets America running 
on clean energy. Meeting that goal will require each of us to 
make a modest investment. I applaud USDA for its ongoing work 
to quantify the investment that Americans raising crops and 
livestocks would be called upon to make. For its part, EPA 
projects that if the bill recently passed by the House were 
enacted, then gasoline and diesel prices would be 17 cents per 
gallon higher in 2020 than under business as usual.
    But the House-passed bill includes provisions designed to 
soften many of the cost impacts that worry farmers. For 
instance, the program would distribute free emission allowances 
to energy-intensive, nitrogenous fertilizer manufacturers and 
wet corn millers. It also would distribute the value of 
emissions allowances to propane consumers such as the farmers 
who use it in drying corn.
    Overall, EPA projects that the House-passed bill would 
entail an annual average per household cost of between 22 and 
30 cents a day over the life of the program. CBO projects 48 
cents per day in 2020. The costs would be higher in States 
where people regularly drive long distances and rely almost 
exclusively on coal for electricity, but, as CBO has explained, 
these regional differences likely would be small. And, even if 
the costs borne by the average household in a particular State 
were double the national average projected by CBO, that would 
still be less than a dollar a day in 2020.
    Now the modest costs would be exceeded by the direct 
financial benefits that American farmers would receive. Under 
the House-passed bill, American farmers, foresters and ranchers 
would be the beneficiaries of a new, voluntary free-enterprise 
program in which they could, if they chose, receive money for 
offsetting other's emissions by increasing carbon sequestration 
on their lands or reducing methane emissions from their 
operations. EPA projects that the offsets generated by American 
farmers, foresters and ranchers in 2020 alone would have a 
market value of nearly $3 billion, and the amount would 
increase very year.
    Fortunately, the U.S. Government is in a good position to 
establish a robust domestic offsets program. USDA has a network 
of field offices across rural America. Both EPA and USDA have 
scientific expertise in greenhouse gas management with 
croplands, rangelands, forests and livestocks.
    For instance, since 1993, EPA has run the AgSTAR Program in 
which the Agency's technical experts work with farmers to find 
opportunities to capture methane gas and put it to profitable 
use. And, through its Climate Leaders Program, EPA has 
developed a series of offsets methodologies that now have 
undergone extensive review and testing.
    The development of an offsets market will require a full 
partnership between relevant Federal agencies including USDA, 
EPA, the Department of the Interior and the Department of 
Energy. EPA looks forward to continuing an intensifying that 
partnership.
    I thank this Committee for its constructive engagement with 
the agricultural community on clean energy and climate 
stewardship.
    Thank you again for inviting me to be here today, and I 
look forward to answering your questions.
    [The prepared statement of Ms. Jackson can be found on page 
88 in the appendix.]
    Chairman Harkin. Thank you very much, Administrator 
Jackson.
    Now we will turn to Dr. Holdren.

  STATEMENT OF JOHN P. HOLDREN, Ph.D., DIRECTOR, WHITE HOUSE 
                OFFICE OF SCIENCE AND TECHNOLOGY

    Mr. Holdren. Chairman Harkin and Ranking Member Chambliss 
and members of the Committee, I certainly very much appreciate 
the opportunity to testify at this important hearing.
    My mic was off. Did you get that?
    Chairman Harkin. Try it again.
    Mr. Holdren. Chairman Harkin, Ranking Member Chambliss, 
members of the Committee, I do very much appreciate the chance 
to testify today at this important hearing.
    My written statement for the record and my short oral 
statement here are focused on the scientific aspects of the 
relation between global climate change on the one hand and 
agriculture and forestry on the other. That relation is a 
multifaceted one. Farming and forestry practices are 
significant sources of the emissions that are driving global 
climate change as well as points of particular vulnerability 
where climate change imperils human well-being by reducing the 
productivity of the land. With appropriate management, on the 
other hand, farms and forests can become the locus of increased 
carbon storage that draws down the atmospheric load of carbon 
dioxide, and they can serve as sources of renewable low carbon 
biofuels.
    Although it is the case today that climate change has 
benefited farms and forests in some places while harming the in 
others and that mixed pattern may persist for some years more, 
there can be little doubt that the larger temperature increases 
expected by 2030 and beyond on a business as usual trajectory 
of climate change are going to put substantial stresses on 
farms and forests in most places.
    Those stresses can be alleviated to some extent by 
adaptation efforts of a variety of kinds, of course, including 
development of heat, drought and pest-resistant crop strains, 
more efficient water management strategies for agriculture and 
more. We absolutely need to make well-focused and effective 
investments in these kinds of adaptation measures.
    But adaptation becomes more difficult, more costly and less 
effective the larger are the changes in climate to which one is 
trying to adapt. The need to restrain climate change to a level 
with which affordable adaptation measures can plausibly cope is 
what has led so many analysts of this problem to conclude that 
every effort should be made to avoid exceeding a global average 
temperature increase of 3.6 degree Fahrenheit, that is 2 
degrees Celsius, above the pre-industrial level.
    Looking at the numbers on what would be required to achieve 
that goal makes clear that the agriculture and forest sectors 
simply must be part of the program. We will need the reductions 
in emissions that can be had by reducing tropical deforestation 
and by modifying the agricultural practices that currently 
account for significant methane and nitrous oxide emissions. We 
will need the increase in absorption of carbon dioxide that can 
be had from afforestation and reforestation and improved 
management of agricultural soils. And, we will need the 
contributions that expansion of sustainably produced biofuels 
can make to reducing our dependence on carbon dioxide-emitting 
coal, oil and natural gas.
    All of these opportunities are sufficiently well understood 
scientifically to support implementation of policies and 
activities to help us get from the farm and forest sectors the 
contributions needed from them if the challenge is to be met. 
At the same time, continuing to improve our scientific 
understanding of the relevant processes, including our capacity 
to measure and monitor them quantitatively on local to regional 
scales, will be valuable for increasing confidence that the 
performance specified in policy and international agreements is 
indeed being achieved, for developing improved understanding of 
some of the currently less well-researched options in the 
agricultural and forest sectors for both mitigation and 
adaptation and for refining our policies in the decades ahead.
    Achieve the high confidence that decisionmakers and the 
public will want concerning offsets and the reality of 
emissions reductions or uptake increases claimed for other 
initiatives in the agricultural and forest sectors will have to 
rely in substantial part on existing tools such as the EPA's 
National Greenhouse Gas Inventory, land use data, carbon cycle 
modeling and the project-based monitoring approaches that have 
been developed by EPA and USDA.
    At the same time, our current observation networks for 
emissions and absorption of carbon dioxide and other heat-
trapping gases are not adequate for some kinds of the 
monitoring that would be desirable, and a continuing effort to 
strengthen the network of ground-based, air-based, ocean-based 
and space-based measurements of those fluxes is warranted.
    The many approaches for deriving clean fuels from plant 
material differ in their state of technological development, 
the efficiency of energy conversion, their requirements for 
land and water and other inputs such as pesticides and 
fertilizers, their cost, their net benefits in reducing 
greenhouse gas emissions when all of the inputs, as well as 
influences on soil and vegetation where the material is grown 
and elsewhere, are taken into account and other environmental 
and social impacts, positive as well as negative.
    While much is known about those factors, the technologies 
are evolving and so is our understanding of their full range of 
characteristics. I believe we know enough to define appropriate 
metrics to help with choosing options and regulation, but we 
will get better at it as our scientific understanding of the 
details improve.
    Continuing to strengthen the scientific foundation for 
policies and strategies in this domain going forward is going 
to bring significant rewards in terms of our confidence in the 
performance of the approaches that are put in place, in terms 
of the ability to improve those approaches over time and the 
capacity to develop additional options for farm and forest-
based climate change mitigation and adaptation for the future.
    The White House Office of Science and Technology Policy is 
energetically engaged, together with the full range of relevant 
Cabinet departments, other Federal agencies and White House 
offices and with our partners in the wider research community 
and the Congress, in ensuring that this happens. My colleagues 
in the White House and I look forward to working with this 
Committee and the rest of the Congress to that end.
    I thank you for your attention. I will be pleased to try to 
answer any questions you may have.
    [The prepared statement of Mr. Holdren can be found on page 
79 in the appendix.]
    Chairman Harkin. Thank you very much, Dr. Holdren.
    We will begin a series of 7-minute rounds here, if we get 
our clock going here right.
    Mr. Secretary, first of all, thank you very much for 
getting the analysis to us that you did on this. I would just 
like to ask again and have you expand a little bit on this, 
that what you are saying basically in this analysis is that for 
the near term--let me look at my table again here--for the near 
term, 2012 to 2018, that the increase in total expenses on 
agriculture would be $0.7 billion it looks like. I think that 
is right. Is that $0.7 billion per year?
    Secretary Vilsack. Senator, that is correct, but that is 
not necessarily the net farm income number if that is what you 
are looking for.
    Chairman Harkin. So it would be an increase of $700 million 
per year in real dollars on average.
    But then you are saying that on the other side of the 
equation is that the offset markets could cover these costs. Is 
that right?
    Secretary Vilsack. Senator, that is correct, but if I can 
just expand on it just a bit.
    It is somewhat difficult to conduct a full and complete 
analysis because there are many, many variables. What we tried 
to do is to come up with a very conservative estimate of the 
impact, and, by conservative, I mean we did not take into 
consideration in looking at the expense side.
    There are basically two components to it. There is the 
direct and indirect energy costs. Direct costs would be fuel 
for tractors and combines. Indirect would be fertilizer.
    We did not ask ourselves or try to include in the 
evaluation what changes would be made if fuel prices were going 
to go up, so that farmers would end up figuring out how to use 
less.
    Now, since 1970, we have seen a fairly consistent pattern 
of farmers basically figuring out how to do more with less, but 
we did not factor that in nor did we factor in any technology 
changes that could potentially impact fuel usage nor did we 
figure in the impact of increased opportunities on the 
bioenergy side. So there are things that would potentially 
impact and affect this expense number which have been evaluated 
in other studies, and other studies would obviously see this 
total expense number lower.
    So, depending upon, what we tried to do is give you a 
range, and the most conservative estimate is you are looking at 
$700 million on the expense side. On the more inclusive 
evaluation, that number is significantly lower. In fact, we 
think that there is a possibility of increase in net farm 
income in the early years as a result.
    Chairman Harkin. I take it from your testimony, Mr. 
Secretary, that you actually feel pretty bullish about this, 
that really there are more opportunities out there for farmers 
and ranchers to actually gain income from a cap and trade as 
long as there are decent offsets and as long as we have some 
other provisions I assume that I have not talked about in 
there, and that really the farmers, while their expenses may go 
up a little bit, they have more to gain from offsets.
    Secretary Vilsack. Senator, I think that is true.
    You know some will suggest that there is a difference 
between a farmer who is raising corn and a farmer who is 
soybeans and one who is raising rice. There are regional 
differences. There are product commodity differences.
    But, on the whole, farming and agriculture in this Country, 
I think, will benefit. And, I think also the rural communities 
that farmers support and live in will also benefit because we 
are not factoring into any of this the job creation 
opportunities that are presented in rural communities.
    Chairman Harkin. Ms. Jackson, in the 2007 Energy Bill, we 
committed to a steadily increasing supply and use of biofuels 
as a key element of our national strategy to reduce dependence 
on petroleum. We need to make sure the marketplace can 
accommodate that increasing supply, and the key issue today--
the key issue--is what we call the blend wall for ethanol. The 
amount of ethanol being produced soon will exceed the amount 
that can be used as 10 percent, E10.
    Your Agency is considering a request to grant a waiver that 
would allow ethanol blends of up to 15 percent to be used in 
gasoline-fueled vehicles.
    Now, again, the 10 percent, I went back and looked. How did 
we ever get to 10 percent? That was just plucked out of thin 
air in the Clean Air Act, and I remember when that was passed.
    We have had a lot of data, and I have seen a lot of 
information come in that it could be as high as 20-some 
percent. That would have no effect whatsoever on present state 
internal combustion engines.
    We were talking about just a waiver up to 15 percent which 
would give us half again as much use of the ethanol being 
produced. When can we expect a ruling on that request and could 
you address yourself to the possibility of increasing the blend 
wall to 15 percent?
    Ms. Jackson. Sure, Mr. Chairman. The public comment period 
on the waiver request to increase the ethanol content of 
gasoline from 10 to 15 percent actually closed just a few days 
ago on July 20th. EPA received thousands of comments, and, as 
we are required to do, we are evaluating those comments as well 
as data from several sets of tests, engine tests that are being 
performed jointly with the Department of Energy and some 
information that we are getting from the Department of 
Agriculture. The Clean Air Act gives the Administrator up to 
270 days which would end on December 1st of 2009 to render a 
decision.
    Chairman Harkin. Ms. Jackson, you just came onboard EPA, 
but there is a feeling among some of us. I always speak for 
myself. I cannot speak for any other member of this Committee, 
but I talk to a lot of people around in agricultural circles, 
obviously. I have been on this Committee a long time.
    There is a sense. I will be very frank with you. There is a 
sense among a lot of us that there is a built-in bias within 
EPA against biofuels, that there is a bias somehow that an 
initial mistake was made when we first started our biofuels 
program and that we need to put an end to it as soon as 
possible.
    Now that could be wrong. I am just telling you in all 
frankness there is that sense and that feeling among a lot of 
us, that there is some bias at EPA against biofuels.
    I hope that you will not take that as any kind of a bad 
remark. After all, you just got there. I am not talking about 
you. I am just talking about going back 20 years and some of 
the battles that we have had with EPA going back that time on 
ethanol.
    So I hope that we can expect this ruling on the request, 
and, of course, we will take a close look at it, very close to 
make sure that it is really scientifically based when it comes. 
But you think we will have that ruling before when?
    Ms. Jackson. Well, the deadline in the Clean Air Act is up 
to 270 days, and there are two crucial pieces of information. 
The first is the public comment period which has just recently 
closed, and the second are the results of the engine tests that 
will, I think, provide the scientific and factual background 
that can support a determination of what the impact would be on 
engines.
    Chairman Harkin. So, by December?
    Ms. Jackson. That is what we are looking for. December, 
yes.
    Chairman Harkin. It could be before?
    Ms. Jackson. It could be before, sir. But we did get lots 
of comments, and we do need the results of the testing from 
DOE.
    Chairman Harkin. Thank you very much, Administrator.
    I now turn to Senator Chambliss and then in order of 
arrival, as has always been the procedure in this Committee, 
Senator Nelson, Senator Bennet, Senator Johanns, Senator 
Stabenow, Senator Leahy, Senator Casey and Senator Roberts.
    Senator Chambliss. Thank you, Mr. Chairman.
    Secretary Vilsack, as I understand it, what you do is you 
model these analyses based on history, I assume, of input costs 
as well as revenues that are generated, and that is the way you 
came up with your overall analysis relative to the impact of 
the House-passed bill on agriculture. Am I correct in stating 
that?
    Secretary Vilsack. I think that is correct, Senator. We 
also, obviously, utilized information from the EPA as well.
    Senator Chambliss. OK. Now Administrator Jackson said that 
she anticipates that by 2020 you are going to have a 17 cents 
per gallon increase in gasoline. Is that the input cost that 
you used on gasoline?
    Secretary Vilsack. We used the EPA numbers relative to 
fuel, and then we utilized them within a simulated model that 
USDA has used for quite some time to factor in other expenses 
and other income opportunities.
    Senator Chambliss. OK. I understand that your analysis only 
models the impact on nine crops, and that does not include a 
discussion on specialty crops and no mention on the impact on 
livestock, which are the two sectors that generate the greatest 
amount of farm income annually. Can you explain why those two 
sectors were excluded?
    Secretary Vilsack. Senator, I think that there was a 
discussion and review of crop prices and its impact on 
livestock. So the evaluation does discuss livestock.
    The issue of specialty crops, we are in the process of 
obviously continuing these evaluations in a continuing 
analysis. We tried to get as best we could information on the 
crops that were relatively easy to calculate.
    Senator Chambliss. The USDA analysis estimates the gross 
revenues associated with offsets and yet tries to compare those 
with the costs incurred by farmers and ranchers. Could you 
please explain if the offset income noted in the long-term 
analysis is for soil sequestration by row crop agriculture or, 
if as EPA does or EPA notes, does the majority of the benefit 
go to afforestation?
    Secretary Vilsack. As you can see--I do not know if you 
have the chart in front of you--on Table 8, the estimated 
revenues look at afforestation and soil carbon long-term 
methane and nitrous oxide reductions. The combination of those 
two on the long term, we are talking about roughly $20 billion, 
and then forest management is another $8.2 billion.
    Senator Chambliss. I am sorry. Run through that again with 
me, Mr. Secretary. My brain does not operate that quickly here. 
I am looking at Table 8 right now.
    Secretary Vilsack. Well, if you look at Table 8, there are 
three items, two under the Ag Offsets category, if you will, 
and one under Forest Management. The Ag Offset category is 
afforestation and soil carbon and then methane and nitrous 
oxide reductions. I mean there are multiple strategies here for 
addressing how offsets can be calculated.
    We understand and appreciate that EPA was making certain 
projections relative to forests and the amount of tress that 
would be grown. That is part of the equation. It is, by no 
means, the only equation.
    There are a number of farming practices that could be 
adopted that would ultimately qualify for credits as the bill 
is currently drafted. We would anticipate that in partnership 
the Federal agencies would probably, as we learn more about 
this, expand the list of practices and be more specific about 
the practices, but based on the bill as it exists today this is 
our estimate.
    Now there are other estimates that show an even better 
picture for agriculture because they take into consideration 
technology changes. They take into consideration bioenergy 
opportunities. They take into consideration strategies that 
farmers might embrace to reduce their input costs which has 
been historically what farmers have done.
    Senator Chambliss. Given the quick pace of the House's 
consideration and passage of the American Clean Energy and 
Security Act, I understand that there was not much time to 
think through the implementation aspect of the agricultural 
offsets program.
    Now that you have had about a month to think about it, how 
do you envision the Department would operate the offsets 
program, what agency or agencies would administrate the program 
and how would the Department interface with producers who want 
to participate?
    Secretary Vilsack. Well, Senator, we obviously recognize 
the role that the Senate is going to play in the crafting of 
this proposal. I will say that we are prepared to work in 
partnership with other Federal agencies. Several have been 
mentioned today. And, I think it is going to be appropriate to 
have that partnership.
    This will be a significant undertaking, and each department 
has individual and unique assets that allow it to have 
expertise and knowledge. In our particular case, we have field 
staff in every county, virtually every county in the Country, 
which allows us to have eyes and ears on the ground for 
verification purposes.
    Certainly, EPA and USDA have expertise in terms of the 
calculations and determinations of precisely what is being 
absorbed and what is being sequestered and how agriculture is 
being impacted by all this, and so I would see a partnership 
between our agencies. The Department of Energy will be 
involved. The Department of Interior will also be involved. So 
I think it is a partnership that we envision, and USDA is 
prepared to take the roles that are assigned to it by 
policymakers.
    Senator Chambliss. We had a discussion with the panel this 
morning relative to the potential for tariffs to be imposed on 
those countries that do not follow the lead of the United 
States if some sort of cap and trade legislation is enacted. 
Very clearly, it is going to impact our ability to export in 
the world market, and I am one of those who has long advocated 
the fact that the future of American agriculture and our 
ability to make a profit depends on our ability to export our 
products.
    China and India, two countries that are probably the 
biggest competitors for our cotton farmers here, have already 
stated flatly that they do not intend to take any action 
irrespective of what we do.
    Mexico is not likely to take much, if any, action. A 
country like Mexico that has a huge export of agricultural 
products into the United States would be one of those countries 
that was discussed this morning that might potentially have 
tariffs imposed on it.
    What is your thought about other countries we deal with and 
whether or not tariffs ought to be imposed on agricultural of 
those countries that do not participate in some sort of cap and 
trade program?
    Secretary Vilsack. Senator, I would agree that it is in the 
long-term best interest of farmers and ranchers in this Country 
to have robust trading opportunities globally. Clearly, 
agriculture is one of the bright spots in terms of trade, and 
we have a trade surplus of roughly $12 billion. Obviously, it 
will be up to USDA to work with our farmers to make sure that 
that continues.
    I am not sure that I am willing with respect to acknowledge 
the foundation of your question which is that countries 
internationally will not do anything on this area. I think the 
reality is that many countries, as I have traveled extensively 
last year for the Council on Foreign Relations report on the 
international consequences of cap and trade and climate change 
and in visiting with international leaders, with foreign 
leaders, with dignitaries on this issue, I got the sense that 
they were waiting for the United States. They wanted to see 
action. They wanted to see leadership from the United States.
    My view of this is that the world is waiting for us. When 
and if the United States moves, I think we will create, along 
with many other nations, a significant amount of momentum.
    Will what other countries do be precisely what we agree on 
or precisely in the process, I do not know. But I would be 
very, very doubtful that countries as large as China and India 
will essentially do nothing on this. I really expect them to be 
participating in some form or another.
    Senator Chambliss. Well, obviously, if anything is enacted 
here, I would hope you would be correct in that prediction. But 
the fact is, Mr. Secretary, they, this week, have told 
Secretary Clinton that basically we can do whatever we want to, 
that they do intend to do nothing.
    You know from the standpoint of competing in the global 
market, they are tough competitors and they are direct 
competitors with our farmers.
    I think that question obviously is a difficult question to 
answer except, from the standpoint of tariffs, I just hate to 
see us get into a contest where we are throwing rocks at other 
countries for their failure to take action and knowing that we 
are going to be put at a disadvantage because they are going to 
retaliate in some sort of similar activity. So I hope if as we 
move down the line, and we will have other discussions about 
this, that we can have some additional conversation about what 
might happen if that does come about.
    Thanks, the Chairman.
    Chairman Harkin. Thank you, Senator Chambliss.
    Now we will turn to Senator Nelson.
    Senator Nelson. Thank you, Mr. Chairman.
    Thank you for being here, Secretary Vilsack, Administrator 
Jackson and Dr. Holdren.
    I know the frustration is there of how to improve the 
environment without adversely impacting the economy and to do 
so in the reality of a world where, as my colleague from 
Georgia has indicated, some other countries have shown little 
or no interest in assuming some of the costs in curtailing 
their emissions. And so, I hope that we can pursue the most 
economically prudent model. The question is with a cap and 
trade, in my opinion, is whether that is the model.
    Has either of your agencies or the White House done any 
kind of analysis of just instituting a straight cap on 
emissions without a trading mechanism which I quite honestly 
feel will create a new monetary system, trading in these 
credits? Do we have any modeling just on a cap without trade?
    Ms. Jackson. Senator, EPA has not. We know that it would be 
expensive, but we have not done an analysis of that situation.
    Senator Nelson. Well, when you know it would be expensive, 
what does that mean? More or less expensive than cap and trade?
    Ms. Jackson. Well, since I have no analysis to back up my 
statement, I do not want to say relatively. But we know that 
EPA in its regulatory roles on other contaminants knows that 
there is always a cost to regulating a contaminant.
    Cap and trade has proven an opportunity to involve the 
marketplace in mitigating costs. The offsets program discussed 
earlier is one example of a way to mitigate those costs.
    Senator Nelson. Well, my mail is running about 99 to 1 
against that. I use the parade analogy as well. That is what 
are people yelling at you when you are walking in a parade? It 
is no to cap and trade.
    So I am concerned that if this is going to be the approach 
that is taken, that it be the most benign method of dealing 
with the importance of balancing the economy and the 
environment. It is not just about agriculture. It is about 
individuals who turn on the lights at home and business as 
well.
    Is it possible? It seems to me, and you do not have the 
data to back this up, so maybe I just state this in a positive 
way as opposed to a question. It seems to me that a cap without 
the trading piece is likely to give us a more levelized 
increase and less volatile rise in energy prices over the 
volatility that the market is going to experience with the 
allotment of allowance and market of trading credits.
    In Nebraska, which is 100 percent public power, unique--no 
other State is 100 percent public power--I am told that the 
cost of the credits will add significantly to the cost of 
electricity generation in the State. It is not just 
agriculture. It is across the board. So, obviously, I am quite 
concerned that whatever we do, if anything, that it be the 
least invasive in terms of raising the cost of electricity in 
the State.
    I just think that a more resounding effect would come from 
a cap without trade over a reasonable period of time to 
transition to the kind of technology, and maybe Dr. Holdren is 
the person to talk about the technology, to develop the 
technology to overcome the growing emissions.
    Mr. Holdren. Senator, maybe I can just take a very brief 
crack at this.
    The different options for achieving reductions in 
greenhouse gas emissions have certainly been looked at in the 
White House largely on the basis of the existing economic 
literature, which is very large, and what that literature says 
is that the cost of a straight cap without trading will be 
higher than the cost of achieving the same emissions goals with 
the cap and trade system. The reason is the cap and trade 
system allows people to look for and exploit the lowest cost, 
most efficient emissions reductions that are available, 
including reaching into the area of offsets in the agricultural 
and forest sectors. So the idea really is to find the most 
economical way of achieving the emissions reduction targets 
that we are interested in.
    Senator Nelson. Secretary Vilsack, in doing the modeling at 
the USDA, did you follow the modeling set forth by EPA? I guess 
perhaps you did as it related to some of the analysis, but was 
there any other modeling done that might provide additional 
insight as to what the impact of this program might be?
    Secretary Vilsack. Senator, what we did is we took 
information from EPA and we utilized a model that we have been 
using at USDA for some time to model impacts and came up with 
what we think is a relatively conservative view about this 
because we did not factor into it, as I said earlier, 
technology changes, adaptation by farmers and ranchers. We did 
not look at the potential impact on bioenergy and the positive 
aspects of that. We did not look at the impact of the renewable 
energy standard that might create more opportunities. None of 
that was calculated.
    Now there have been other models, Senator, outside of USDA 
that actually attempted to calculate the impact of those 
changes. Obviously, they came up with less expense and more net 
farm income than our model, and the offsets would be something 
in addition to that.
    So we are looking initially at the impact directly on 
farming and then income opportunities from the offsets program. 
Our view is in the short term it is a plus for agriculture. In 
the long term, it is a significant plus.
    Other studies have suggested in the short term it is an 
even bigger plus than we have calculated, and in the long term 
it is roughly equivalent to what we calculated. EPA has done 
its own analysis, and I think we have created what, for you, is 
a range, is a sense.
    I think what I would like to say is it is my view that, all 
things being considered, what we know today is agriculture and 
rural communities will benefit in the long term from this 
approach. And, I have great confidence in American farmers and 
ranchers to be innovative and to be adapting and to be 
embracing technology. That has been their history. That is 
going to continue to be their history.
    Senator Nelson. Thank you.
    Thank you, Mr. Chairman. Thank you all.
    Chairman Harkin. Thank you very much, Senator.
    Senator Stabenow and then Senator Bennet, Senator Johanns 
and on down the list.
    Senator Stabenow. Well, thank you, Mr. Chairman, and 
welcome to all of our witnesses today. We appreciate all of 
your work in so many different areas.
    Mr. Chairman, thank you again for this very thoughtful 
hearing today.
    Let me start with Administrator Jackson. I want to talk 
about the role of the USDA and the EPA because it is so 
important as we move forward on what is an essential part of 
this bill, offset bill, and I believe also an incentive program 
under USDA. But as we are working through drafts and looking at 
language as it relates to an offset title, one of the biggest 
issues really is clarifying the roles between the two agencies, 
the two departments.
    The result has to be the fact that we have assurances that 
we are going to have projects that are backed by scientific 
integrity, no question about that, but we also need to have 
certainty to the regulated community that offsets will in fact 
be available.
    I understand that the EPA will be one of the agencies that 
will ensure the operability of a cap and regulatory 
obligations, the agency. It is also critical that USDA 
implement the agriculture and forestry offsets program and that 
in fact it be more than consultation, that in fact it be the 
agency that is implementing the program.
    So, as we are working out all the details, I wonder if you 
might just speak about the EPA's history of working with other 
agencies. We have two agencies. There has been concern about 
the different cultures or perspectives of the two agencies. But 
I wonder if you might talk about how you view working together 
to implement this very important section and what has been the 
agency's experience in joint cooperation with other agencies as 
well.
    Ms. Jackson. Thank you, Senator.
    First, I would like to say that if our agencies can work as 
well together as I do with Secretary Vilsack I think we will be 
in very good stead. I have enormous respect not only for his 
knowledge of his industry, of agriculture, but his knowledge on 
this issue, on the environmental aspects and the potential 
benefits for the environment as a whole as well as what we can 
do for our agriculture. And, I obviously think we both have 
important roles to play.
    We have history, and it troubles me to know that there is 
some bad history. But there is also some very good history, and 
I am committed to bringing that forward.
    We have worked with USDA Natural Resources Conservation 
Service under the EQIP Program to help growers in California 
who are in severe on-attainment areas for ozone, a big issue 
because obviously their operations impact ozone levels. What we 
have done together is work on replacement of older diesel 
engines that have high levels of NOx emissions that are 
creating ozone problems, and we have worked on new certified 
diesel engines together to address that issue.
    We work very well together on the Food Quality Protection 
Act where each of our agencies has co-chaired separate 
committees that consulted extensively during the promulgation 
of the FDA rules, where EPA's role there is actually written 
into the statute--very effective process.
    We work very well together, I think, on international 
limits and domestic issues related to pesticide residues. That 
is not to say that we do not come at it from different angles, 
but we find invaluable the input from USDA on those programs.
    We work with other agencies as well. We have worked 
collaboratively on any number of issues with FDA and certainty 
with the Department of Energy.
    Senator Stabenow. Thank you very much.
    Mr. Secretary, to you now, a similar kind of question, but 
I want to speak about the capacity of the USDA to focus on 
climate change and the offsets program.
    I understand that the Global Climate Change Office has been 
studying agriculture's role for some time and has even been 
contributing currently to our international efforts. I also 
know that the USDA is developing the Office of Ecosystem 
Service and Markets to look at methodologies and standards for 
carbon projects such as offsets. I joined with Senator Lugar 
and 10 other Senators in a letter supporting the work of these 
two offices recently, encouraging you to continue to develop 
both of those.
    But I wonder if you might talk about and assure the 
Committee that the USDA has the history, the capability to 
implement an offsets program and that it can be done with 
strong scientific integrity so that we and the private sector 
will be able to depend on the fact that there will be offsets 
for quality projects.
    Secretary Vilsack. Senator, first of all, let me join with 
the comments of Administrator Jackson in terms of our personal 
working relationship. It cannot be closer, and it is a very 
solid relationship. The respect that she has for me is 
certainly equal to the respect that I have for her and her 
background and her knowledge and her way of approaching 
problem-solving, which I think is important for agencies to be 
able to do, to be able to work things through when there are 
difficulties or differences of opinion. So I value that 
friendship and that relationship.
    I would say that I am very proud of the extraordinary 
outreach efforts that we have within USDA. We have a lot of 
hardworking folks working in communities all across this great 
Country, and they are anxious to be part of this process if 
you, the policymakers, make a decision that there is a role for 
USDA. We are prepared to accept that role, but, obviously, that 
is your decision.
    These are folks who, because of their work in conservation 
programs, are somewhat familiar with the capacity to verify 
activities that take place. We have been criticized for some of 
our efforts in conservation in terms of some of the work that 
has been done recently. We are aware of those criticisms, and 
we are in the process of responding to them. So I think we will 
be an even stronger agency than we have been in the past by 
virtue of the Inspector General's report. So we are prepared.
    I would also say that it is important for us to do our work 
well. To Senator Nelson's comments, part of the capacity of a 
market to work is that people have confidence in the market. In 
order to have confidence in the market, you have to know that 
when a credit is being given and value is being assigned to it 
and it is for sequestering a certain amount of carbon, that in 
fact that is occurring.
    I think it is important, relevant, that we understand the 
significance of our work connected to the significance of the 
quality of the market, the validity and the merit of the 
market. So we are anxious to be helpful, and we are anxious to 
work in partnership with other Federal agencies if that is the 
decision you all make.
    Senator Stabenow. Thank you, Mr. Chairman.
    Chairman Harkin. Thank you, Senator Stabenow.
    Senator Bennet.
    Senator Bennet. Mr. Chairman, thank you for holding this 
hearing and thank you all for coming and giving us your 
testimony.
    This is one of the most complicated issues, I think, that 
we are going to face in the Senate, and I think no one has a 
monopoly on wisdom on these issues. We are going to have to 
hear from a lot of people, a lot of different ideas.
    I, for one, look forward to working with my colleagues here 
and others on what is a tough, tough challenge, but I was 
reminded this week. You know in Colorado water is everything, 
especially for agricultural producers.
    Dr. Holdren, I wanted to ask you because on Monday a new 
study from the University of Colorado at Boulder, one of our 
Nation's premier research universities, was published, 
indicating that there is a one in two chance that the water 
reservoirs of the Colorado River will dry up by 2050. I do not 
know if I will still be around, but my children certainly will, 
and the Colorado River is the lifeblood of communities across 
Colorado, Arizona, Utah, Nevada. It enables agriculture in 
California's Imperial Valley not only to exist but to flourish.
    So, Dr. Holdren, in your testimony, you talk about climate 
change shifting weather and water patterns. Is this the kind of 
phenomena that you are talking about and could you elaborate a 
bit?
    Help us better understand why climate change would so 
dramatically alter water flow. How would changing water 
patterns affect agriculture? How are water, energy and 
agriculture linked?
    Why and would a climate bill make a difference?
    Mr. Holdren. Well, Senator, that is a big question, but I 
will do my best with it.
    As I mentioned in the testimony, there are a number of 
different ways in which the global climate change that is 
underway influences water availability, including not only 
surface runoff but soil moisture. Part of that is that changes 
in relative heating of land and ocean areas produces changes in 
circulation patterns which changes where the rain falls. As it 
happens, somewhat perversely, the overall pattern is that 
places that are already tending to be semi-arid, water-short, 
over time are likely for the most part to become even more so 
because of these changes in circulation patterns in the 
atmosphere.
    That is happening in the United States. It is also 
happening in other parts of the world, for example, China, 
where changes in the monsoon that the Chinese themselves have 
concluded have been driven by global climate change have 
aggravated flooding in the south of China and drought in the 
north, which is a longstanding problem for them.
    A second aspect of this phenomenon is that in a warmer 
world more water evaporates. That sounds good for water because 
what goes up must come down. More evaporation means more 
rainfall.
    The problem is that with more water in the atmosphere as a 
result of more evaporation a greater proportion of the rainfall 
comes in deluges, and deluges have the characteristics that a 
larger proportion of the water runs off quickly in storm runoff 
and is not captured in soil moisture or n reservoirs and, 
therefore, is not available. The second aspect of having more 
of it come down in deluges is there is typically a longer 
interval between those deluges during which the higher air 
temperatures that are coming from the warming phenomenon 
overall increase the evaporation.
    You have less of the total precipitation available, longer 
periods between precipitation in which the soil moisture is 
evaporating away, and the projections therefore for much of the 
Western United States, and particularly the Southwest but many 
other parts of the world, is a very substantially increased 
incidence of drought over the decades as ahead as climate 
change increases. Drought, of course, is bad for agriculture.
    Senator Bennet. I get the collective action problem that 
was talked about earlier, about do we go first, do we wait for 
these other countries to go first, how does all that work.
    What I can tell you is that in Colorado now we are 
confronting these issues because of the water shortages that we 
have. From my perspective anyway, if we are going to be able to 
assure that another generation of Coloradans are able to farm 
or one after that, we need some answer to this question on how 
to reserve our water resources. This, I think, is part of it.
    Mr. Secretary, I just wanted to ask you quickly if you 
could speak a little bit more about the potential for farmers 
in rural communities to sell offsets for practices like 
improvements in soil management, optimization of crop 
rotations, improvements in livestock management. All seem like 
potential economic benefits. We have not seen them yet, so we 
are not sure, but they could be hugely important to our rural 
communities.
    I wonder if you could talk a little bit more about the 
economic opportunities that you see here.
    I should say having seen you out in my State, on the 
question of whether USDA is ready for this, if the ability to 
withstand tough questioning is part of that, you certainly meet 
that test. I appreciate your being out there.
    Secretary Vilsack. Thank you, Senator.
    Farmers and ranchers in this Country, I think, are 
extraordinary innovators. When you take a look at the level of 
productivity that we have seen in American agriculture over the 
course of the last 30, 40, 50 years--take whatever timeframe 
you wish--you are going to see an extraordinary amount of 
productivity, productivity that feeds our families and helps to 
provide food for the entire globe.
    One of the reasons they have been successful is that they 
have been adapters. They have been innovators. They have been 
embracing new technologies.
    We have an annual event in my hometown of Mount Pleasant. 
It is called the Old Threshers Reunion. They bring out the old 
steam-powered threshing machines and the old tractors, and you 
compare those to the tractors and combines and farm machinery 
that are being produced in John Deere plants in my home State 
in Waterloo and Ottumwa and Ankeny. It is absolutely 
phenomenal. So I am convinced that there is going to be 
significant innovation.
    What we attempted to do in this analysis was to say, look, 
let's put that innovation for the time being aside and let's 
see if we can get a handle, a range on how this might impact 
folks.
    What we concluded was that when you take everything into 
consideration--the capacity for offsets, the impact on fuel 
costs, the impact on indirect energy costs--the reality is for 
farm and agriculture generally we are going to see opportunity.
    Now folks will ask me about various types of farming in 
various regions of the Country, and, obviously, there will be 
differences between what farmers do in Colorado and what 
farmers do in Iowa. But if we cannot participate, if our 
farmers cannot participate in this particular program, then 
there are a whole host of other programs that we can direct and 
provide assistance for. So, between the farm programs, the 
conservation programs, this, the energy title of the Farm Bill, 
broadband--this is apart from your question--there is enormous 
opportunity in rural America.
    In fact, I would argue that what we are seeing is one of 
the most significant, if not the most significant, investment 
in new opportunities in rural America that we have seen in a 
long, long time, maybe in my lifetime, if we take advantage of 
it.
    Then, if we do take advantage of it, then we are going to 
see windmill manufacturing facilities in our States. We are 
going to see new bio refineries being located in our States. We 
are going to see companies that can make anhydrous ammonia out 
of corncobs and reduce our reliance on petroleum. And, that is 
all going to create jobs, and many of those jobs are going to 
be located in rural communities throughout the Country.
    So I think there is an opportunity side here that is often 
is not appreciated. We can argue about the numbers, and we can 
fiddle with the numbers. But I think at the end of the day the 
innovation history of agriculture is one of America's success 
stories, and I think with this we will see a continuation of 
that.
    Senator Bennet. Thank you.
    Thank you, Mr. Chairman.
    Chairman Harkin. Thank you, Senator Bennet.
    Senator Johanns.
    Senator Johanns. Mr. Chairman, thank you.
    I must admit I was listening with some degree of amusement 
when Senator Nelson was talking about our parade experiences. 
As the junior Senator, I follow him in Nebraska parades, and, 
yes, they were yelling at us: Vote no on cap and trade.
    You are at a different point than where most of the 
American people are, and I will just be blunt about that, and 
let me walk you through why.
    Administrator Jackson, recently, you testified, I think it 
was you, and said, after you pass this, you are going to have a 
very negligible impact--I am probably not using your exact 
words--on temperature.
    So the chart that the Chairman was using, the other facts 
that have been brought to your attention, what you are saying 
is if the United States passes this bill, we are not going to 
impact temperature in any significant degree. Is that not 
correct?
    Ms. Jackson. Senator, you are referring to a question at a 
recent Senate EPW hearing that asked about whether or not we 
would have an impact--alone, we could have a significant impact 
on global CO2 concentrations in the atmosphere. We did not 
actually talk about temperature.
    What I said is, alone, I did not think we could get to a 
significant enough level to solve the climate change problem. I 
also went on to state that I recognize that we need others to 
join. I will tell you here, I do not think we have to do it all 
at the same time.
    Senator Johanns. But, you see, here is the problem. Poor 
Tom Vilsack has to go out there with that testimony and try to 
convince farmers on a hope and a prayer that somehow this is 
going to work out.
    I turn to my attention to you, Mr. Secretary. When you talk 
about the offsets, I noticed in both the charts from the EPA 
and the charts from the USDA you have clumped together farmland 
and forests, and they are two vastly different things. Tell me 
how much farmland is going to be taken out of production as a 
result of this climate change effort if it were to become law.
    Secretary Vilsack. Senator, it is funny you should mention 
that. I was speaking to State foresters yesterday, and I asked 
them to define for me a forest. Their view was that what you 
and I would normally think of, like a national forest, was not 
their view.
    Their view was if you have trees on your farm. If you have, 
as I do on my farm, roughly 90 acres of timber, I have a 
forest. Now I would never have considered that a forest, but 
those in the business do consider it a forest. So I guess there 
is a definitional issue here.
    You ask the question, how many acres are going to be 
displaced? I do not know that anybody. I mean the EPA estimated 
a number of a million acres of farmland, but my point is this.
    Senator Johanns. I know your point.
    Secretary Vilsack. I do not think you do.
    Senator Johanns. By number of acres, just the question 
asked, how many acres go out of farm production?
    Secretary Vilsack. Well, the problem with that question is 
that it assumes that there is no increase in productivity in 
farming because if you increase productivity and you have the 
opportunity to take marginal land and you create offset 
opportunities from that, you have increased the possible income 
for farmers as we are doing with conservation programs.
    Senator Johanns. But here is the question.
    Secretary Vilsack. Then the question becomes what about CRP 
in terms of the options that people have? So it is difficult to 
answer your question because I am not willing to concede that 
there will be a lack of productivity and I am not willing to 
concede that we are not going to take land that is in CRP and 
use it for forests.
    Senator Johanns. Mr. Secretary, I am not even asking about 
productivity at this point.
    I am just asking, you or maybe the Administrator can tell 
me in your forecasts how many productive acres of farmland will 
go out of production. We will start there, and then I will ask 
other questions.
    Secretary Vilsack. Go ahead. You can answer it, and then I 
will be glad to add something.
    Ms. Jackson. Senator, I do not have a number for you here. 
I have heard numbers that are being attributed to EPA's 
modeling efforts that are on the order of tens of millions of 
acres. We are looking into that.
    But what EPA's modeling efforts say, the analysis, the 
conclusion you can draw is that if an offsets program is geared 
around afforestation such that farmers could be paid 
voluntarily to grow trees, there is possibly the idea that many 
farmers will choose, choose voluntarily to do that. But we do 
not have a firm estimate on that number with me.
    Senator Johanns. In your charts, the USDA relied upon the 
EPA analysis of June 23rd. In your charts, on Page 33 of that 
analysis, you say this: Because overall land area in crops 
declines due to afforestation, the modeling indicates--so you 
had to have some acres to model it--a net decrease in total 
agricultural soil carbon storage as carbon is transferred from 
the agricultural soils pool to the afforestation pool.
    Now the whole purpose of this hearing is just to be honest 
with people what is going out of production because the 
important thing about that is that affects the pork producer, 
the cattle guy, and it beats living daylights out of them. Why? 
Because your prices are going to go up.
    They are out there saying, look, my input costs are going 
to go up with electricity and natural gas and any fertilizer I 
have to buy.
    Just tell them how many acres are going out of production.
    Secretary Vilsack. Senator, the problem is that qualifier, 
how many acres are going out of production, because that 
assumes that the forests are going to be planted and the trees 
are going to be planted on land that is currently in 
production.
    What I was trying to suggest is what you are now providing 
is another option to conservation programs. So it may be that 
farmers choose not to take the acre where they are growing corn 
out of production. They are going to take the acre that is 
currently in the CRP program or another program.
    Senator Johanns. I know what you are saying, Mr. Secretary, 
but I read this language. I did not write this language. I am 
only trying to get to the bottom of it.
    Acres are going to go out of production. You used some 
number in your model. What is that number?
    Secretary Vilsack. Senator, I think what----
    Senator Johanns. That was directed at the Administrator.
    Secretary Vilsack. Oh, I am sorry.
    Ms. Jackson. Thank you. Senator, I do not have a number of 
acres that go out of production. I did listen carefully to the 
qualitative language that you read, and the assumption is that 
an offsets program that includes some incentives for 
afforestation could have the impact of taking some acreage out 
of production into forest production, but we do not have a 
number.
    Senator Johanns. The offsets there that the Secretary 
speaks about would not go to the row crop person to offset his 
higher energy costs, his higher fertilizer costs, his higher 
other costs. It would go to the person who is planting the 
forest land.
    But, again, unless you can quantify this, you cannot sell 
this plan because it becomes the hope and the prayer plan for 
agriculture, because you cannot tell farmers and ranchers what 
they are going to be exposed to in terms of their input costs, 
and that is a huge issue. And, that is what I am getting to 
here.
    I said yesterday on the Senate floor it is no consolation 
to stand with one foot in the campfire, one foot in the ice 
bucket and say, on average, I am in good shape.
    It is no consolation to say to farmers and ranchers, you 
are going to be in good shape on average, if you do not know 
the regional differences, if you do not know the crop 
differences, if you cannot tell them how much land is going to 
go out of production.
    Yet, we have a House bill that was passed, and I find that 
shocking. I just find that amazingly shocking that that would 
have happened without that information being out there.
    Mr. Chairman, thank you.
    Chairman Harkin. Thank you very much, Senator.
    Now, Senator Roberts.
    Well, I will go to Senator Cochran then if you are not 
ready.
    Senator Roberts. You caught me off guard there, Mr. 
Chairman.
    Thank you for your agreement that we hold additional 
hearings. Thank you for your agreement that we try to focus on 
some subjects that all of us will decide on when we have a 
meeting. I think that is real leadership, and I appreciate it 
Mr. Chairman, thank you very much.
    Senators Bennet, Nelson, Thune, the county commissioner, 
mayor and Governor and Secretary and Senator Johanns and 
Senator Roberts, me, we are all High Plains drifters. We are 
out there on the high plains where it is pretty risky business, 
and we make a great crop 1 year, lose it two and hope for the 
best.
    You have indicated that, well, if you are from coal 
country, and we are, 73 percent in Kansas. You drive long 
distances, and we sure as heck do that. And if we do not have 
any trees, last time I counted there were six in Dodge City.
    [Laughter.]
    Senator Roberts. I am making that up. We do have trees.
    That somehow we are going to go to nuclear from coal. We 
have not built a nuclear plant in 30 years.
    I think we are going to natural gas, which means higher 
fertilizer prices, and so that endangers the wheat, the corn, 
the sorghum and the soybean and even the cotton crops that we 
have and then puts a real dilemma in regards to the livestock 
producer and our rural communities. So that is just for 
starters in regards to the indexes that you have indicated.
    Secretary Vilsack, it has been over 1 year since the 
Congress passed the Farm Bill. I know you are working hard on 
the implementation. I know our producers are anxious for the 
final rules and the decision to be made.
    This bill gives you 1 year to establish the offsets 
allowances programs. I just think that is going to be a pretty 
heavy burden for you, if not an unrealistic task.
    We know you do not have all the necessary resources for the 
SURE disaster program. I understand that has been done by 
pencil and paper and, hopefully, an eraser. If you do not have 
the software to implement this program, which we have a good 
idea of how it works, how are you going to implement this new 
carbon program that demands time and understanding?
    Do you have the necessary resources to do this? Are you 
going to have to pull away from the Farm Bill and the disaster 
program to explain the warming cap and trade program?
    Secretary Vilsack. Senator, I am confident that we will be 
able to get the work done.
    You have alluded to the fact that we have an outdated, 
antiquated computer system, and we have requested resources to 
begin the process of modernizing that system. Our hope and 
prayer is that we can justify to you, the policymakers and the 
appropriators.
    Senator Roberts. I will be very warm to that, and I 
appreciate the answer.
    Administrator Jackson, EPA's cost analysis has taken a good 
deal of concern here. The EPA assumes 150 percent increase by 
2015 in nuclear electricity production. I just mentioned that. 
I think this underestimates the amount of fuel switching by 
utilities, to move coal-based generation to natural gas. 
Obviously, as I have stated, in the High Plains, why, we are 
heavily dependent upon coal for our electricity, meaning our 
farmers are heavily dependent upon coal.
    Now, since we have not had a new nuclear plant in 30 years, 
is it not more likely that many utilities will simply switch 
from coal to natural gas as opposed to building new nuclear 
plants and then how is that going to affect farmers who need 
fertilizer to grow the crops that feed a troubled and hungry 
world? And, it is a whole bunch of crops.
    Where is my chart or is this the one with the chart?
    Ms. Jackson. No, that is the other one.
    Senator Roberts. Oh, there is the chart. This is a Kent 
Conrad special.
    That is the nuclear production that you indicate is going 
to rise there. Stick your finger out there, right there.
    I just do not think that is going to happen. I do not think 
it is going to happen. I wish it would, and I hope it would.
    Any answer?
    Ms. Jackson. Yes, Senator. Thank you.
    EPA did not assume nuclear power assumption. Rather, we 
projected that nuclear power would expand because of a rise in 
the carbon price. We constrained the ability of nuclear power 
production to grow any faster than the Energy Information 
Administration, which I see is also listed on your chart, has 
in its reference case. So we tried to adhere to what the Energy 
Information Administration says is likely to happen. So we did 
not look come up with that.
    Senator Roberts. I understand that.
    I am not going to ask the question by Saxby Chambliss that 
referred to India when he said no, and that per capita they 
release less CO2 than anybody else.
    But I would sure be careful about any tariff punishment, 
more especially on China. We just heard from the former Fed 
Chairman, Mr. Greenspan, saying we might be at a tipping point 
with our economy, where he indicated that China might even buy 
our paper or our bonds--if that happens, higher interest rates.
    I would be a little careful. As I said before, maybe 
Senator Smoot and Senator Hawley are for it, but I am not.
    Finally, Administrator Jackson, I want you to come with me 
to a little town in Kansas called Treece. It is down there in 
the southeastern part. We can make a short walk across the 
street from Treece, a town in need of a buyout, into some place 
called Picher, Oklahoma, a town that received a buyout.
    So, whenever your schedule allows you, we will show you a 
good time down there. We will get away from that toxic waste 
site. There is a lot of restaurants there, and you can take 
your pick, and we will have a good time.
    If not, then at least the Region 7 Administrator who tends 
to be not less than cooperative but just a little stubborn or 
something. I am not quite sure what the problem is down there.
    Secretary Vilsack, your testimony leaves out the impact of 
removing an estimated 40 million acres. That is the answer I 
think or that is the answer I have, Senator Johanns, and that 
is on the Farm Bureau estimate. I do not know if anybody is 
going to buy that. I am sure the Farm Bureau does--of pasture 
land to plant trees on the livestock industry.
    Basically, I do not understand when you say there will be 
no impact of these decisions on livestock producers, and I 
think we have to have that answer, more especially in the High 
Plains.
    You do not have to answer that. I think I am over time by 
26 seconds, and that is pretty good.
    No, I still have time left. Go ahead. You have 14 seconds.
    Secretary Vilsack. Senator, I guess I approach this from a 
slightly different viewpoint about the capacity of American 
agriculture to innovate, and I appreciate that you may have 
some skepticism about that. But, based on history, what we have 
seen is the capacity of farmers and ranchers to adapt and to 
embrace technology and to be extraordinarily productive.
    So, if one is suggesting that by virtue of taking pasture 
land out of production, that somehow that is going to 
substantially increase feed costs, that is an argument you can 
make. But I think you have to take into consideration: How will 
we adapt to that? What will we do in terms of feed technology? 
What will we do in terms of seed technology that might reduce 
inputs, that might increase productivity, that might allow us 
to produce exactly what we are producing today or more on less 
land?
    Because the reality is that is in fact what has happened. 
We have produced more. We have significantly increased 
productivity in this Country.
    Senator Roberts. Well, I think we have a pretty good record 
on that. I mean after several Farm Bills that many of us have 
worked on the productivity of the American farmer is 
incredible, and precision agriculture has been incredible. 
Matter of fact, we have been so incredible that production 
agriculture is sort of a forgotten miracle.
    But 40 million acres out of production is significant. Do 
you agree with that number or not?
    Secretary Vilsack. It may very well be the number that is 
in the estimate, but what I do not agree, and I do not want to 
belabor the point that I had with Senator Johanns.
    The question is what land are we taking out of production? 
Are we taking land that currently is being used to produce 
crops or currently being used for grazing or are we taking out 
land that is significantly marginal and is not currently being 
used or is in conservation programs? That is the question.
    I think what we are creating here are options. What we need 
in rural America in my view is as many income options as 
possible so that farmers have a chance of success and 
particularly those mid-sized farmers. You know if you look at 
the ag census what you are going to see is an increase in 
production agriculture, units of $500,000 in sales, 41,000 more 
units of farms in the last 5 years, 108,000 more farms in the 
smaller category of less than $10,000 in sales. Where we need 
options are those folks in the middle, and I think what this 
presents is the possibility of another income option.
    Chairman Harkin. Senator Roberts?
    Senator Roberts. Yes, I know my time is up, and I thank 
you, Mr. Chairman. Just could I ask Administrator Jackson if 
she could just please come to Treece with me? It would just 
be----
    Ms. Jackson. I am happy to, Senator.
    Senator Roberts. You will make every effort to come?
    Ms. Jackson. I will make every effort to come.
    Senator Roberts. Yes, ma'am. Thank you so much.
    Ms. Jackson. Thank you.
    Chairman Harkin. Senator Cochran.
    Senator Cochran. Mr. Chairman, thank you.
    I have been sitting here for quite a while, so I have had 
an opportunity to read some of the statements which I found 
interesting.
    I want to congratulate you, Mr. Chairman, for convening the 
hearing and getting our Committee to focus on the challenges, 
not only the traditional ones that we talk about, using 
agricultural products for energy production and some of the 
other alternatives that discussions like this always drive to 
consider.
    I wanted to bring to the attention of the distinguished 
Assistant to the President for Science and Technology, John 
Holdren, that in our State of Mississippi, in Vicksburg, 
Mississippi, a few years ago, an entrepreneur family who had 
been in the oil and gas production business and in the 
distribution of product, transporting product in the 
traditional fossil fuel industries has now branched out and 
become active in the production of fuels from bioengineering 
experiences and trying to find new ways of creating usable 
energy products and delivering them at competitive prices.
    I was fascinated by the success that this one company has 
had. I happen to be at the groundbreaking in Vicksburg several 
years ago and really had not thought much about that business 
until I got their annual report, and they are beginning to make 
money. But more than that, they have invented and are creating 
new ways of producing and distributing energy in our State and 
throughout the Southeastern Region.
    This is the old Lampton-Love Company. Two families joined 
together to start the business. But they now have a high-tech 
name, and I cannot remember it. It is an acronym, two or three 
letters together, Inc.
    But I am going to send you a copy of the annual report just 
to encourage you that leadership in the innovative approaches 
to dealing with older problems is being experience around our 
Country, I think. I think this is an indication of a new 
industry that gives us all hope for the future, that it is not 
all doom and gloom.
    We do have challenges in the agricultural area, and I know 
you are interested in that too, but I think you might be 
interested in this.
    But I want to thank the panel too for being here and 
helping us explore other issues that we need to be familiar 
with, so we can work in a cooperative way. This is not a 
partisan deal. We are all in this together. So we want to make 
sure that we have programs, government policies that encourage 
the successful operations of not only farms and agribusinesses 
but other energy companies as well, similar to the one I just 
mentioned.
    Thanks for conducting the hearing, Mr. Chairman.
    Chairman Harkin. Thank you, Senator Cochran. I do not know 
if there are any responses from the panel to that or not.
    We are expecting two stacked votes. If we can hurry, we 
will not have to come back then. So next would be Senator 
Thune.
    Senator Thune. Thank you, Mr. Chairman, and I want to thank 
you for holding today's hearing. I hope it is the first of many 
hearings that the Agriculture Committee conducts on climate 
change. If that kind of a law is enacted, a cap and trade 
program would have sweeping implications for agriculture and 
for the entire economy.
    I would say that in past years, when I have traveled across 
South Dakota, what I traditionally hear from agriculture 
producers has to deal with market and weather conditions. It 
has to do with USDA, price support, conservation programs, 
export opportunities, those sorts of things, the traditional 
topics of conversation that reflect the challenges of making a 
living in agriculture.
    But today, it seems to me at least the attitude among 
farmers and ranchers has shifted dramatically, and it seems 
like the issues that they are bringing up have more to do with 
things that the government is doing that they think is making 
agriculture production more costly, less productive, less 
competitive. And, they are concerned about the cap and trade 
system proposal that they view would increase already high 
input costs for fertilizer and diesel fuel and electricity.
    They are concerned about food safety laws that invite FDA 
inspectors onto their farms and ranchers.
    They are worried about EPA studies that make ethanol look 
like a worse polluter than gasoline. They are worried about 
efforts to dramatically expand the Clean Water Act or regulate 
every ditch and puddle and stock dam and creek bed and stream 
on their land. And, they are worried about the EPA regulating 
greenhouse gases under the Clean Air Act and what that would 
mean for the future of production agriculture.
    So, in a few short months, it seems to me at least that the 
government is being viewed more and more to folks in production 
agriculture as almost an adversary as opposed to an ally.
    My view is that Congress and the Administration should be 
helping farmers and ranchers compete in a global marketplace 
and not hamstringing their everyday production decisions, and I 
hope as the Ag Committee moves forward with these issues that 
we will keep that very simple principle in mind.
    Administrator Jackson, do you believe that increased 
renewable fuel production is better for our economy and our 
environment than relying on traditional gasoline made from 
imported oil?
    Ms. Jackson. Senator, I believe that renewable fuels by 
law, and that is what I am bound to implement. The Energy 
Independence and Security Act says that we should be moving 
toward renewable fuels and requires EPA to do certain 
rulemakings around that.
    Senator Thune. Will the EPA in its RFS2, final RFS2, limit 
that regulation to just domestic indirect land use changes when 
associated with renewable fuel production as opposed to 
international land use changes?
    Ms. Jackson. Senator, that regulation was out in draft. The 
public comment period has closed, and we are now in the middle 
of a peer review that is being conducted over the summer. We 
are waiting for the results of that peer review, and that will 
certainly also inform our decision--specifically the peer 
review, specifically on the issue you raise which is the 
international indirect land use implications of certain 
biofuels.
    Senator Thune. The other issue, and I guess I would ask 
this, and I do not know if this is contemplated in your 
rulemaking, but will the EPA include in its RFS2 rule the 
indirect land use changes that are associated with increased 
oil production?
    Ms. Jackson. Yes, because they were already considered in 
the draft rulemaking. So, in looking at petroleum fuel, there 
was a look at indirect land use production with respect to 
international impacts there as well, Senator.
    Senator Thune. For petroleum?
    Ms. Jackson. Right. We applied the same kind of modeling to 
petroleum fuels that we did for renewable fuels.
    Senator Thune. OK. Well, I guess I would hope that, if in 
fact when the final ruling comes out. But if it does 
contemplate using international land use changes, Mr. Chairman, 
I would hope that this Committee would work toward making a 
change because that, to me, is not something that ought to be a 
part of any equation or calculation of the carbon footprint of 
renewable energy.
    Secretary Vilsack, I am interested in the role that Federal 
forests can play in a safe and reliable source of renewable 
electricity and biofuel, and I am interested in your thoughts 
about what role Federal forests can play in the climate change 
policy and biofuels in terms of renewable energy production and 
energy security.
    My question, I guess specifically, is do you believe that 
the Farm Bill definition of renewable biomass or the current 
RFS2 version of biomass is a better way to promote renewable 
energy?
    Secretary Vilsack. Senator, we have obviously been 
supportive of the definition of biomass that the Senate and the 
House worked extensively on during the course of the Farm Bill 
discussions.
    We know that on public lands the current House bill will 
allow for removal of trees and other materials except from 
national parks, but we also are working within the Recovery and 
Reinvestment Act to utilize opportunities in our forests for 
woody biomass demonstration projects to show the feasibility 
and opportunities. So a combination of those two programs, I 
think, will allow us to fully utilize our forests.
    I would also say that we are looking at a strategic view 
relative to our forests that focuses on a comment that Senator 
Bennet made earlier, and that is maintaining them so that we 
make maximum use of their capacity to retain water and to 
improve the quality of water. So that requires us to look at 
maintenance a little bit differently, and that creates, I 
think, additional opportunities for supplying biofuel 
production from woody biomass and energy production from woody 
biomass.
    Senator Thune. There is a different definition in the Farm 
Bill, however, than exists in the Energy Bill which many of us 
have tried to rectify. The current definition in the Energy 
Bill and the RFS2 would preclude some of the areas of the 
Country that might participate in renewable fuel production, 
and the Black Hills of South Dakota comes to mind.
    Now people in that area of the State are very much 
supportive of taking some of these forest residues and waste 
materials that generally contribute to fuel loads for fires in 
those forests and using them for a beneficial use which would 
be production of renewable energy.
    So I guess what I would suggest, and I hope that before 
this process is completed that we will be able to get a biomass 
definition that is consistent with the one that we passed in 
the Farm Bill because I think that is the correct one. It makes 
it possible for many of these areas of the Country to 
participate in renewable fuel production. I guess I make that 
as an observation.
    I mean your answer to me sounds like you are sort of more 
along the lines of the RFS2 and the Energy Bill definition. I 
know there have been various permutations of that as the 
process has moved forward, but right now all those definitions, 
with the exception of the one in the Farm Bill, preclude areas 
like the Black Hills of South Dakota from participating.
    Secretary Vilsack. Senator, I guess if I might just suggest 
to you or indicate to you my thought about this, and I think we 
have been fairly consistent publicly about this. We think the 
Farm Bill definition of biomass is a good one.
    Having said that depending upon what the policymakers 
decide, if you decide collectively to make a different decision 
on this as it relates to the Climate Change Bill, I still think 
that there are opportunities for the utilization of the woody 
biomass that can be created in the forests that you referred 
to. I think there are still opportunities within the energy 
title of the Farm Bill, within some of the recovery and 
reinvestment projects that are also being funded.
    So I think there are still opportunities, and I think it 
will be part of how we maintain our forests properly in order 
to preserve water.
    Chairman Harkin. Thank you very much, Senator.
    There are two votes now. The first vote was called at 4:14. 
I assume the first vote will be 15 minutes and the second vote, 
10 minutes. They are back-to-back votes.
    Senator Lincoln is next. I am going to leave and go vote, 
but you are probably going to have to leave pretty soon too. Do 
you want to go vote and come back?
    I am trying to figure out what to do here as we have two 
votes. If it was one vote, it would be easy.
    Senator Brown. I cannot come back.
    Chairman Harkin. Pardon?
    Senator Brown. I cannot come back. I have meetings about 
half an hour, 15 minutes from now. So, Senator Lincoln, it is 
her turn. So she can go.
    Chairman Harkin. Well, but she can----
    Senator Lincoln. I will be brief.
    Chairman Harkin. All right. Why do we not go ahead and you 
proceed?
    Senator Brown. I have just one.
    Chairman Harkin. Go ahead.
    Senator Lincoln. Yes, I will just throw mine out there.
    Thank you, Mr. Chairman. We appreciate you and Senator 
Chambliss for bringing us here, and we do hope there will be 
more of those hearings.
    We want to thank the panel. We are grateful to you for 
being here today, but we just need you to know we have to have 
you through this whole process in terms of coming through and 
really doing something that is meaningful but also something 
that is respectful of the economic conditions we are in right 
now and certainly from the different, diverse areas that we 
come from in this Country. So we appreciate your all being 
here, and we look forward to working with you.
    Just three questions basically: Secretary Vilsack, you have 
discussed that an agricultural offsets program will provide new 
revenue sources for agricultural producers across America. I 
guess my question, though, is do you believe that that will be 
the case for all agriculture producers?
    As you well know, my State is a State that produces a 
tremendous amount of rice. They do it efficiently and 
effectively, and they feed the world. But many rice producers 
will see their input costs increase with no opportunity for 
mitigation on those costs. We would certainly rather have a 
rice field than a parking lot.
    If you have any recommendations for mitigating cost 
increases for those producers that are ineligible for the ag 
offsets programs, I hope that you will express those to us 
either here today or in writing.
    The other question I would have for you would be the USDA's 
analysis, which we got this morning. I have not had the 
opportunity to go through it thoroughly. But are there 
estimations of how many acres of cropland are going to be 
converted to forestry over the life of this bill and what are 
the impacts of those acreage shifts to the cost of grain and 
crops and particularly food prices?
    That question has another second part to it which is we 
hear these questions over this debate and concerns about 
potential increases in the cost of fuel and the cost of 
electricity. We do not hear much about the potential increases 
in the cost of food and feed that may be indirectly impacted. I 
am certainly interested in the potential impact of climate 
legislation on food processing, the food processing industry 
which includes sectors that are important to us in Arkansas, 
whether it is poultry, meat, oil seed processing and others and 
would certainly like to have your comments on that and 
wondering if we would provide.
    I mean there is going to be little assistance in the form 
of free mission allowances in the initial years of some of 
these programs. So I just worry if you have taken the kind of 
look at USDA at the potential impact of the House legislation 
on the food processing industry and the disproportionate cost 
on that industry that could really high, higher food prices in 
these difficult economic times.
    Secretary Vilsack. Senator, let me see if I can quickly 
respond in light of the schedule here.
    As far as rice is concerned, I think there are steps that 
rice producers can take to potentially qualify for offsets. 
Obviously, there are differences in terms of crops. Some people 
have more opportunities. Some people have less. Those who have 
less or those who have no opportunities, the bill that is 
currently before you does provide for additional allowances for 
those who cannot take advantage, to help them transition. So 
there is potentially some additional income source and 
opportunity from allowances for those who cannot participate.
    That presupposes that innovation, presupposes that our 
knowledge stays static. That will not stay static. We will 
continue to innovate, and I think we will find a multitude of 
ways that we do not know of today to take full advantage of 
this.
    As it relates to crops and trees, I think Senator Roberts 
said 40 million. I am not willing to concede that that 
necessarily will take cropland and will necessarily result in 
acre for acre reduction of feed and therefore increase costs 
for livestock producers.
    The reason I am not willing to concede that is because this 
gives farmers a choice. They may decide to take unproductive 
land. They may decide to take land that is currently in 
conservation programs and utilize the offset opportunities that 
forestry may present. So I think there are options here.
    As it relates to food processing, I do not know that we 
have done an evaluation of this, but I do know that the bill 
was designed and created in a way to try to provide for 
opportunities for energy-intensive industries to receive some 
sort of assistance and some sort of opportunity to transition 
to more efficiency and greater efficiency, which hopefully over 
time will lead to less input costs and hopefully be able to 
stabilize what we currently enjoy in this Country, which is 
relatively inexpensive food relative to other countries.
    Senator Lincoln. I would just say that these are problems 
that I think we have not fully addressed, and I hope that you 
will work with us to address these. They come as a big 
complication for our State and our population, also working 
with the Hunger Caucus here in the Senate, understanding 
difficult times, and the availability of food at reasonable 
prices is a critical issue.
    Just to put on all of your minds, I hope, we have talked 
about early actors and the importance of what early actors have 
done. I hope that we will in some way adequately ensure that 
there is not an incentive for those owners to stop doing the 
good things that they have done.
    I know my dad. I come from a rice farmer and a seventh-
generation Arkansas rice farm family. I have never known a 
better conservationist than my dad, and I look around our 
State, and I see what farmers are doing, using the existing 
programs and others to really do the best job they can, whether 
it is clean water or whether it is conservation, planting trees 
and a whole host of other things.
    So I hope we will disincentivize the good things that are 
happening, and I hope that all of you all will look at whenever 
we do push on these things sometimes we get unintended 
consequences.
    So I look forward to working with you.
    Thank you, Mr. Chairman.
    Chairman Harkin. Thank you very much, Senator Lincoln.
    Senator Brown. Can I have 30 seconds?
    Chairman Harkin. We have about 4 minutes left.
    Senator Brown. Oh, do we have it? OK. Thank you, Mr. 
Chairman.
    We have how long left?
    Chairman Harkin. We have about 4 minutes.
    Senator Brown. I wanted to ask a question, and I will just 
submit it in writing to Secretary Vilsack.
    First, welcome all three of you.
    Chairman Harkin. I will leave the record open for questions 
to be submitted in writing.
    Senator Brown. OK. I appreciate that.
    I wanted to ask about the two major industries in my State 
are manufacturing and agriculture, and there are six major 
energy-intensive manufacturing nationally. All of them are in 
Ohio, and one of them is chemicals. I wanted to and I will put 
a question in writing about nitrogen fertilizer and the 
analysis that you are doing and its impact on climate change 
and on the legislation. So I will put that in writing and get 
it to, and I appreciate your thoughts on it.
    Thanks.
    Chairman Harkin. I am sorry, Senator. I think by the time 
we go and come back, we have these two votes, and it is not 
fair to keep these people here for that. I apologize.
    But we will submit these in writing. I would ask you to 
please respond as rapidly as possible. I will leave the record 
open for Senators who were not here, and, Senator Chambliss, I 
think, has some follow-up questions that he wanted to submit in 
writing in also.
    Ms. Jackson. Mr. Chairman, can I just correct the record? I 
gave an inaccuracy. The public comment on the renewable fuels 
rule has not closed. That is important to many of your 
constituencies. We extended it recently, so I just wanted to 
make sure I corrected the record on that.
    Chairman Harkin. I appreciate that very much.
    I thank you all very much. It was a good exchange.
    The Committee will stand adjourned.
    [Whereupon, at 4:29 p.m., the Committee was adjourned.]
      
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