For some time Canadian conservation organizations such as the Saskatchewan Soil Conservation Association have had an interest in greenhouse gases. It has been shown that carbon dioxide can be taken from the air by the plants through photosynthesis and deposited in the soil. Farmers using certain management practices may return more carbon to the soil than they emit and, therefore, have a net carbon credit which is of interest to other emitters. SSCA has had an ongoing contact with groups who are net emitters regarding a trade in carbon credits. One such group of energy companies belong to GEMCo and are attempting to purchase these carbon credits either as a transitional or long term strategy to address their emissions re the Kyoto Agreement. Soil carbon credits were not accepted at Kyoto but maybe added in future negotiations.
SSCA felt that conservation groups needed to approach this very important issue with a common front. Thus the SSCA began working with the Peace River Soil Conservation Association, Alberta Conservation Tillage Society (ACTS), Manitoba North Dakota Zero Tillage Farmers Association (MANDAK), and the Innovative Farmers of Ontario to deal with the issues of emission reductions and carbon removals through sequestration.
GEMCo established a trading structure in the United States and wanted to see if something could be done in Canada. As a result a meeting between members of the conservation groups and GEMCo was arranged in Regina on April 17, 2000.
During this meeting, members of the conservation groups presented their points of view and their concerns about entering into such an agreement. These concerns might best be described under the heading of RISK.
(1) Price risk - GEMCo has been suggesting a price of a tonne of CO2 at $3 to $5 while other sources suggest a price now and in the future of $20/tonne and up. Currently any trades are speculative and may not accurately reflect future pricing.
(2) Input price risk - Prices for inputs like fuel, fertilizers and herbicides may increase due to regulations designed to restrict greenhouse gas emissions. If producers have sold their sequestered carbon, they would not be able to use this asset to offset their own emissions.
(3) The soils ability to store carbon - Soils have a natural limit to the amount of carbon it can store. So while a farm may be a net sequesterer now, it will be a net emitter at some later date. A farmer may need to use their stored soil carbon to offset their emissions in the future.
(4) Baseline protection and credit for early action. Currently there is no established base year for counting greenhouse gas reductions through sequestration. In addition there is no Canadian policy to give credit for early action. In other words, farmers who sequestered carbon before 2008 will not get any credit for previously stored carbon. This creates an absurd situation where current policy may encourage no-till farmers to release their stored carbon through tillage only to resequester it at a future time for which they can get credit. Credit for early action needs to address both emission reductions and sequestration.
(5) There is uncertainty about the amount of soil carbon that can be credited and traded.
GEMCo suggested that they would like to arrange a trade soon to influence future policy development. They suggested that they are not interested in dealing with producers themselves but see some organization being an aggregator. The aggregator would accumulate carbon credits through contracts with individual farms and then sell these to an emitter. In the United States, an insurance company, which already had contacts in the farm community, fulfilled that role. GEMCo does not see the price changing much from the $3 per tonne of CO2, but on the positive side would be willing to write a contract conditional on credit on early action and baseline protection.
John Bennett, a director with SSCA, suggested that we might address the many potential risks in an outright sale of carbon credits by arranging a lease. The farmer would lend the credits to energy companies to help them over a transitional period, be paid for this loan, but at some predetermined time, these credits again be returned to the farmer. Energy companies would presumably have made appropriate adjustments by this time. GEMCo said they had no interest in such an arrangement. Several days after the meeting with GEMCo a conference call of members of the conservation groups was held to discuss a trade. Members felt that there is a considerable risk for farmers for very little monetary return and that we should not proceed with a trade at this time. There continues to be an interest in carbon credits and the idea of a lease arrangement is being pursued.