farmgate: Cap And Trade: How Likely Will You Get Compensated For Sequestering Carbon?
The climate change legislation is now in the hands of the US Senate. Earlier this year the House approved legislation that aims to reduce carbon emissions, and offered farmland owners the opportunity to dedicate their land to reduced tillage and in return receive small payments from industries that emit carbon dioxide and other greenhouse gases. The Senate did not make any substantial changes that would be more beneficial to farmers, thus the so-called “cap and trade” program will have to be evaluated by land owners and operators to determine if there will be any benefits for their property. Your farm may or may not benefit from “cap and trade,” depending on several issues.
Instead of allowing carbon-containing gasses to flow into the atmosphere, the climate change legislation would have carbon retained and/or returned to the soil. The crop production process is a major key to achieving that goal, but farm owners and operators have to determine if their change in production practices is worth the payment to retain carbon in the soil, called sequestration. USDA economists have issued a recent brochure that helps in the understanding of the pros and cons of the issue.
One of the initial issues is the requirement to sequester carbon for 5-10 years, and farmers with a year to year cash or crop share lease may express some reluctance. Owners may be quite willing to make a long term commitment, but operators who are short tenure will have to evaluate the merits. The economists say sequestration of carbon on a given farm can complicate lease negotiations and rental rates.
The economists also believe it is too early to tell how large any payments will be and how farmers will respond to those payments given the changes that will be required. They think farmland with a tenure rate above 80%, meaning ownership or long term renter, will make land use or production practice changes at a rate of 45% likelihood. However land with a tenure rate under 20% will only see 20 to 25% of it enter such a program.
To some extent the carbon sequestration program may be compared to the Conservation Reserve Program because 2/3 of the carbon sequestration potential comes from conversion of cropland into grassland or timberland. USDA’s statistics indicate that a large volume of high tenure farm and ranchland have large amounts of pasture, hay production, or trees, and many of those high tenure farms have CRP land on them. Conversely, low tenure land, which many see more rental operators will have more acreage in crop production and less in CRP, thus would be less likely to be interested in a carbon sequestration program. Over 70% of US cultivated cropland falls in the categories of lower tenure rental operators.
So what happens if you make a change in production practices? How much carbon will you save? Within the Cornbelt, a change from conventional tillage to reduced tillage will sequester 0.09 tons of carbon per acre per year, which would increase to 0.17 tons if the switch were made to no-till. By retiring cropland into a CRP program, 0.25 tons of carbon would be sequestered per acre per year, and if cropland were converted to pasture or hay, that would rise to 0.50 tons per acre per year.
While your 2,000 acre corn and soybean farm may not be an immediate candidate for a carbon sequestration program, there are some land owners who may already be counting the cash. USDA says half of the potential carbon sequestration potential is concentrated on just 7% of farms in the Northern Plains and Mountain regions which operate 38% of all farmland. They have a high tenure rate and already contain 52% of US hay and pastureland and 58% of the CRP enrollment.
The USDA economists contend farms that are likely participants in a carbon sequestration program will be larger operations, potentially with livestock and willing to convert marginal cropland to grazing lands. They add that price signals from a national cap and trade system would encourage changes in agricultural practices but would not encourage non-operating landowners to make radical changes in their leasing arrangements.
Summary:
If you are counting on reducing the farm mortgage with payments from a carbon sequestration or cap and trade program, your farm may not be a typical one in the Cornbelt. The most likely farms that would participate in the program to reduce carbon emissions are going to be large operations which with long term owner or rental arrangements, potentially with livestock on grazing lands, and willing to convert any marginal cropland into more pasture or hay production. While payments from such a program are unknown, and the legislation has not even been passed by Congress, the benefits to agriculture seem to be limited to compensation for eliminating any tillage and converting cropland into a long term setaside similar to the CRP.
Posted by Stu Ellis on October 8, 2009 12:07 AM to farmgate