THE COST OF THE KYOTO PROTOCOL TO U.S. CROP PRODUCTION: MEASURING CROP PRICE, REGIONAL ACREAGE, WELFARE, AND INPUT SUBSTITUTION EFFECTS

This study analyzes the impact of implementing carbon permit trading considered under the Kyoto Protocol, and the subsequent expected increase in energy and resource prices on U.S. crop production. The focus is on input substitution, net farm income, regional crop acreage, and crop prices. The analysis is carried out with a calibrated mathematical programming model which covers the major crops produced in the 48 contiguous states on a regional basis. The model accounts for both the variable inputs and the allocatable inputs of land and irrigation water, and it permits input substitution when farmers are faced with external shocks. The results suggest that when energy prices increase, the net cost to the crop-producing sector depends on the farmerÂ’'s ability to substitute crop inputs and the elasticity of demand for the crops. The impacts of carbon tax cost increases differ significantly among crops and regions. Overall, crop acreage and output decrease, total net revenues increase in most regions, and consumer surplus declines.