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Published July 27, 2010, 08:47 AM

Study: Beets hit hard in carbon tax scenario

FARGO, N.D. — U.S. sugar production will decrease “substantially” if carbon emissions are taxed at projected rates, says a new analysis by the Center for Agricultural Policy and Trade Studies at North Dakota State University in Fargo.

By: Mikkel Pates, Agweek

FARGO, N.D. — U.S. sugar production will decrease “substantially” if carbon emissions are taxed at projected rates, says a new analysis by the Center for Agricultural Policy and Trade Studies at North Dakota State University in Fargo.

Richard “Skip” Taylor and Won W. Koo at NDSU calculate that the U.S. cane sugar would decline slightly under “cap-and-trade” or carbon tax rules. Mexican sugar imports would increase, but the majority of imported sugar will come from other countries.

Worldwide greenhouse gas emissions will decline, but only slightly, the report says. That’s because the GHG emissions that are cut in the United States are partly replaced by GHG emissions in other nations as sugar production there ramps up to meet the demand currently filled by U.S. beet production. The only defense for that would be import taxes on sugar from countries without the GHG limits, but that wouldn’t save the U.S. beet industry, they say.

Taylor and Koo analyzed three scenarios, with the current situation compared against a carbon taxes of $10, $20 and $30 per ton of carbon dioxide. It assumes the taxes are equal to the price of carbon offsets.

The U.S. beet sugar industry emits about 1.1 metric tons of carbon dioxide per ton of sugar produced, while the cane industry emits 0.6 tons of carbon per ton of sugar, according to the report.

The reason is that beet sugar is energy-intensive, especially on the processing side. Most U.S. beet sugar processors use coal and don’t have access to natural gas, so switching from coal is “unfeasible,” the report says.

Meanwhile, sugar cane plants use natural gas and their own “bagasse” byproduct. “By using bagasse, the cane industry will obtain credit for reduced emissions, which will reduce the impact of GHG emission regulations on the industry,” the report says.

The United States produced 7.3 million tons of sugar in 2009, including 4.2 million tons of beet sugar and 3.1 million tons of cane sugar. At the same time, it imported 2.2 million tons of raw sugar from more than 40 countries that export sugar to the U.S. based on import quotas.

“The U.S. imported 2.52 million tons of sugar in 2009, 1.55 million tons through the tariff rate quota system, 0.54 million from Mexico and 0.43 million through other programs,” the report says.

Taylor and Koo divided the U.S. into 10 sugar production regions, including six for beets and four for cane. They analyzed 34 consumption regions in the country. Mexico is included in the supply equation because the North American Free Trade Agreement since January 2009 allows the free flow of sugar between the two countries. The transportation between production and the processing and then to the market is included in the carbon equation.

Three scenarios

Among the specifics under the three scenarios: They generally bracket a $20 level that has been estimated as a possible level for carbon taxes. The results:

n $10-per-ton carbon tax: U.S. beet industry declines 17 percent; the U.S. cane industry declines by 3 percent; Mexican imports increase 43 percent; other countries’ imports increase 50 percent.

Meanwhile, world emissions of GHG from sugar production declines by 3.5 percent because of the U.S. changes. Impacts on all GHG worldwide (sugar and nonsugar) would be 0.2 percent.

n $20-per-ton carbon tax: U.S. beet industry falls by 38 percent; U.S. cane industry declines by 4 percent; Mexican imports increase 130 percent; and other countries’ imports increase by 115 percent.

Under this scenario, world emissions of GHG from sugar production decline by 8.4 percent and world GHG emissions decline by 0.47 percent.

n $30 per ton carbon tax: U.S. beet industry falls by 70 percent; Mexican imports increase by 180 percent; and other countries’ imports increase by 228 percent.

Meanwhile, world emissions of GHG from sugar production declines by 15.9 percent because of U.S. changes, while world GHG percentages decline by 0.9 percent.

“The study shows that regulations directed towards only domestic industries will not achieve the desired goal of reducing GHG emissions,” the report says. This “highlights a concern of unilateral regulations in a country.” Without global emission controls, a “tax on sugar when it is imported from an exporting country where GHG emissions are not regulated” is “another alternative.”

“This tax may protect the domestic industry, but the costs would be transferred to consumers,” they say.

Koo says he doubts the sugar industry would qualify for exceptions to carbon taxes on the basis of being trade-sensitive. One problem with that is that the sugar industry doesn’t export sugar,

He says consumers use relatively little of their sugar in the form of retail sugar. Much of it comes in the form of processed foods. Any increase in the price of sugar may have much significance overall.

American Crystal Sugar Co. President David Berg says the report is a “clear, objective quantification of work we’ve done internally for some time” and includes some outside sources.

“The simple truth is if the goal of this legislation is to reduce greenhouse gas emissions, it’ll have a fairly small effect on GHG globally, and you’d wipe out a very efficient domestic industry,” he says.

The industry would get “relatively small offsets to a very major cost implication” if it qualifies as an “energy-intensive, trade-sensitive” industry under the Waxman-Markey bill, he says. That exception will phase out over time and “then you get hit with both barrels.”

Koo says the institute has been working on the study since March and at the request of the region’s sugar industry. He says any effort to reduce GHG to prevent global warming and climate change “must be global” and must include China, which is the largest GHG country in the whole world.

“If China is not deregulating, we are shifting our industry to China,” he says.

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