farmgate: In A Carbon Market Farmers Can Be Paid For Current Agricultural Practices.
While global warming is, and may always be, a topic of controversy, it provides an opportunity for profit by farmers. In essence, those who believe in global warming blame it on the increased release of greenhouse gases, which include carbon dioxide. And the large emitters of carbon dioxide will voluntarily pay anyone who can capture and retain carbon to offset their emissions that will result in financial penalties. Farmers are among those wearing white hats coming to the rescue.
The international concern over greenhouse gas accumulation in the atmosphere was boosted by the 1997 Kyoto Protocol treaty. While US diplomats have declined to endorse the controversial politics surrounding the movement, the US has moved in the direction of reducing carbon dioxide emissions according to the April 2008 goal that would stop their growth by 2025. That is an opportunity for farmers, according to ag economists Luis Ribera, Joaquin Zenteno and Bruce McCarl at Texas A & M University. Their research report says there is no widespread policy that will create a significant value for farmers to offset greenhouse gas emissions by industry, but there is an international and a small domestic voluntary carbon market.
Such a carbon market allows emitters of greenhouse gases to either reduce their own emissions or pay someone else to reduce emissions and that creates a payment that can be bought and sold as long as someone can reduce net emissions cheaper than the emitters themselves could. Such a market would bring together a power plant that burns coal to generate electricity with a farmer whose agricultural practices can put carbon into the earth, in what is called a sequestration activity. Those include:
• Changes in tillage practices
• Crop rotations
• Land conversion to grasslands
• Creation of forests
• Alteration of livestock herd size
• Livestock feeding, manure management
• Crop fertilization
• Biofuel feedstock production
While some changes that farmers may make may be costly, they have to be less expensive than any payment that would be received from the carbon market, and if a farmer makes a voluntary change today, it may not be recognized in the future, if there is a mandatory policy to change. The domestic carbon market has established a price for carbon, much like the price for any commodity, and it is about $6 per metric ton of 2,204 lbs., while the European market has carbon valued at $35 per metric ton because of heavier regulations. If the US adopts the Kyoto Protocol, economists believe the value would rise to $250 per metric ton.
The Chicago Carbon Exchange (CCX) was created in 2003 and trades contracts of 100 tons of carbon dioxide, with the current annualized rate of 100 million tons being traded. To participate, a farmer or group of farmers would have to have the ability to represent 10,000 tons of carbon dioxide, and that would require about 25,000 acres of cropland. Since that is beyond the means of most farmers there have been associations formed to aggregate the carbon sequestration much like an elevator aggregates grain for sale in large volumes. The Texas A & M ag economists say crop producers must make a five year commitment to conservation tillage or no-till and two thirds of the soil surface must be undisturbed and two thirds of the residue must remain. Also soybeans cannot be planted for more than two years out of the five, so a corn and soybean rotation would begin with the corn crop. Depending on the location, farmers would be credited with sequestering 0.2 to 1.0 tons of carbon dioxide per acre. Most of the Cornbelt would be credited with 0.6 tons per acre. Out of the $6 per ton value, several fees would be deducted, which may reduce the value to $5, then that is applied to the actual rate of carbon sequestered per acre, with may be in the $2 to $3 range.
Summary:
Environmental pressures to reduce carbon dioxide emissions may provide financial gain for farmers who have the ability to remove carbon from the atmosphere through a wide variety of agricultural practices. Such payments would come from the buying and selling of carbon. While payments may not be large, some payments may offset the loss of revenue from changing tillage practices or the expense of moving to other agricultural activities. Payments could greatly increase in the future, if there is more public pressure toward reducing greenhouse gas emissions.
Posted by Stu Ellis on September 17, 2008 12:53 AM to farmgate