Fertilizer manufacturers worried that climate change bill will hurt industry

Aug 28, 2009
Fertilizer manufacturers worried that climate change bill will hurt industry

While Secretary of Agriculture Tom Vilsack maintains there is a positive outlook for fertilizer prices under climate legislation, the Fertilizer Institute is upset that Vilsack won’t listen to their view that the bill could hurt the domestic fertilizer industry.

The potential spike in energy costs for farmers has been one of the major concerns agricultural opponents raise to climatechange legislation. The Fertilizer Institute and others argue that legislation capping greenhouse-gas emissions by power plants will lead to a shift away from coal and a “flight to natural gas,” causing higher natural gas prices.

“We believe it’s going to drive up demand for natural gas and then drive up the cost of the product,” said Kathy Mathers, a spokes woman for the Fertilizer Institute, in a telephone interview on Tuesday.

Vilsack, speaking Friday in Missouri about climate legislation, told farmers that fertilizer costs would not rise in the first several years if the bill were enacted because the fertilizer industry would receive pollution allowances to trade and help keep the costs down. “The way the bill was structured, the fertilizer industry in particular will receive some assistance and benefit in the early part of this process,” Vilsack said. “In the first seven to 10 years of this effort, there should not be any increase in fertilizer costs as a result of this bill because of the benefits that the industry will get from the bill. In other words, they should be roughly equivalent to whatever they think their in creased costs could be.” Mathers said Vilsack’s statements about lack of increase in fertilizer costs are “positively false.” Members of the Fertilizer Institute have been asking for meetings with Vilsack and have become frustrated over the lack of response from USDA officials about that request.

“This is an issue that has been ongoing between the Fertilizer Institute and US- DA,” Mathers said. The climate bill that passed the House in June sets aside 15 percent of the industry pollution allowances for energy intensive industries such as fertilizer production. However, allocations for those allowances will be based on production calculations coming in 2012 so it is unclear how much the fertilizer industry would receive in allowances.

“For anyone to get up and say we have taken care of the fertilizer industry, we don’t know that because it’s based on future calculations,” Mathers said. Overall, the House bill would force major polluters to reduce greenhouse-gas emissions 17 percent by 2020 and up to 83 percent by 2050. The Senate is expected to craft climate legislation this fall. A USDA analysis of the House climate bill in July broke down two cost projections based on whether or not the fertilizer industry receives pollution allowances under the legislation. If allotments are created, production costs for corn would increase $1.19 per acre from 2012 to 2018. Without allot ments, corn production costs would rise $6.01 per acre, USDA projected.

Jim Hurbovcak, deputy chief economist at USDA, said fertilizer costs under climate-change legislation would have some impact on the dynamics between corn and soybeans, leading to a shift to more soybeans because of lower input costs.

“That is because of the role fertilizer prices play,” Hurbovcak said. Hurbovcak said he was not aware of any specific studies just looking at the effects of the legislation on the fertilizer industry. USDA is expected to complete a more detailed analysis of climate change this fall. The Fertilizer Institute released a report last week

showing the U.S. fertilizer industry adds $57.8 billion in value to the U.S. economy and, in 2006, directly employed more than 24,800 people who produced fertilizers valued at $15.1 billion dollars.

But Mathers noted that high natural gas prices have contributed to the shutdown of up to 29 domestic fertilizer plants in the country since earlier in the decade. As much as 90 percent of the manufacturing costs for nitrogen fertilizer can be attributed to natural gas prices.

“That’s going to be a very, very tough haul for the rest of the domestic nitrogen production left in the country,” Mathers said. — Chris Clayton, DTN