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Study: Carbon taxes would have substantial impact on sugar beets: Three scenarios

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 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 greenhouse gas emissions that are cut in the United States are partly replaced by greenhouse gas 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 emissions 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 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 economists estimate that the U.S. beet sugar industry emits 1.1 million metric tons of carbon dioxide-equivalent per ton of sugar produced, while the U.S. cane industry emits 600,000 metric tons. This compares to nearly 0.9 tons of carbon dioxide per ton of sugar in Mexico and an average of nearly 0.7 tons of carbon produced per ton of sugar worldwide.

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 (greenhouse gas) emission regulations on the industry," the report says.

The United States produced 7.3 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.

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:

- $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 greenhouse gases from sugar production decline by 3.5 percent because of the U.S. changes. Impacts on all greenhouse gas emissions worldwide (sugar and nonsugar) would be 0.2 percent.

- $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 greenhouse gas from sugar production decline by 8.4 percent and world greenhouse gas emissions decline by 0.47 percent.

- $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 greenhouse gases from sugar production decline by 15.9 percent because of U.S. changes, while world greenhouse gas percentages decline by 0.9 percent.

"The study shows that regulations directed towards only domestic industries will not achieve the desired goal of reducing (greenhouse gas) 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 (greenhouse gas) emissions are not regulated" is "another alternative."

"This tax may protect the domestic industry, but the costs would be transferred to consumers."

Koo said 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 said 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.

Berg said 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 (greenhouse gas emissions) globally, and you'd wipe out a very efficient domestic industry," he said.

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 greenhouse gases to prevent global warming and climate change "must be global" and must include China, which is the largest greenhouse gas emitting country in the world.

"If China is not deregulating, we are shifting our industry to China," he said.

Mikkel Pates is a reporter at Agweek in Grand Forks, N.D., which is owned by Forum Communications Co.