In 1998 the Minnesota legislature debated a bill that would have generated a $1.5 billion tax shift — lowering local property taxes and raising energy taxes. A $50 per ton tax on carbon emissions would raise the average cost of energy by 15-25 percent, while the elimination of the state education property tax levy would have, on average, reduced local property taxes by about the same percentage.
This report examines the impact of this ecological tax shift on Minnesota’s agricultural sector. Overall, the net impact is beneficial for Minnesota farmers that are growing crops. On a statewide level, the carbon tax raises costs to farmers by about $59.1 million while the property tax reduction lowers costs by $92 million. The benefit varies by crop and by farm size. Soybean farmers do better than corn farmers, large farmers do better than small farmers.
The report also examined the potential for farmers to reduce their energy use through improved efficiency. Over the past few decades, through fuel switching (diesel for gasoline) and through improved crop yields, farmers have been reducing their energy use per bushel grown by 3-5 percent per year. Thus their average efficiency improvements would offset the carbon tax itself very quickly. There are also several untapped areas for significant improvement. These include upgrading the efficiency of equipment like grain dryers and switching to conservation tillage.
If a carbon tax were imposed, it is likely that some system would be developed for paying enterprises that extract carbon from the atmosphere and store it. The science and policy of carbon sequestration is still in its infancy. A recent estimate, however, found that on the national level farmers could adopt soil management techniques that could sequester 75-208 million metric tons of carbon a year, more than offsetting the 66-80 million metric tons of carbon equivalent (MMTCE) they now generate by burning fossil fuels.
Analyzing the impact of the tax shift on Minnesota’s agricultural processors is much harder, in part because it is difficult to evaluate the property tax reduction impact. Overall it appears that the net impact of the tax shift would be negative. Many processors would likely pay more than they would get back.
However, the ecological tax shift bill provides for a substantial exemption from the tax impact for energy intensive industries and also offers low-cost financing for industries to upgrade their equipment to reduce their pollution. Business might well end up benefiting from the tax shift if they take advantage of the efficiency improvement opportunities. Perhaps the largest one would be on-site power generation in high-efficiency, natural gas-fired power plants where the waste heat is used in the facility.
While most farmers and processing enterprises could benefit from an ecological tax shift, the sugar beet farmer and processing industry would bear a significant negative impact. Special provisions might be made for this sector.
