This is an abbreviated version. For the full document, contact the SSCA Head Office.
Agriculture can make two contributions to lowering greenhouse gas (GHG) concentrations in the atmosphere: it can reduce emissions from fossil fuels, fertilizers, and livestock, and it can remove greenhouse gases from the atmosphere with biological sinks. It is important to design markets address these differences.
GHG removals through soil sinks can be very useful as a "bridge" to allow emitters time to implement emission reductions. Markets for sinks must not transfer the liability for emission reduction to farmers and land managers.
When speaking of emission reduction credits (ERCs), there are important differences between credits that represent GHG emission reductions and credits that represent GHG removals.
Removals refer to the actual removal of GHGs from the atmosphere. Biological sinks are the only method at our disposal to actually remove GHGs from our atmosphere.
In the case of emission reductions the price need reflect the cost of reducing emission levels (though cleaner-burning fuels, increased energy efficiency, and so on). For removals, the price must reflect both the cost of removing the GHGs from the atmosphere and the cost of maintaining the sink.
Virtually all farms could lower emissions levels. For example, a farmer implements a fuel consumption reduction and reduces emissions by 10%. Later, the farmer implements a fertilizer management practise that reduces N20 emissions 10%. The farm has now reached a 20% reduction. If the emission targets were -6%, the farmer would have a surplus of 14% to sell in an emission reduction market. The -6% target can change varying the surplus with it. The scientific community is adamant that a Kyoto target of -6% will not address the problem. If public opinion follows the scientists' lead, so will the politicians. A prudent farm manager should recognize the "moving target" for emission reductions.
Let us assume this farmer adopts Best Management Practises (BMP) with reduced or zero tillage and that would remove CO2 from the atmosphere and sequester it in soil as organic matter, creating a carbon sink. GHG removals would be the greatest in the early years and would level off as the sink becomes saturated. Farmers must also realize that this sink can quickly be eliminated with the adoption of tillage.
In October 1999, GEMCo purchased 2.8 million tonnes of carbon offsets from a crop insurance company in Iowa. The exact details of the deal are confidential but the deal may set precedents. This contract deals with emission reductions and GHG removals and also identifies biofuels.
Two elements of this deal are of interest. The first is the price of carbon, which is highly uncertain. Farmers who sell their carbon now may lose out if the real price of carbon rises substantially. The second element is the question of permanence. It is not clear if the burden of risk of permanence has been placed on the buyer, or if the question simply has not been addressed. If a buyer meets his emission quotas in any given year with the help of removal ERCs purchased from farmers, then that year balances out - the farmers sequester X tonnes of carbon, and the emitters emit X tonnes of carbon. However, if a few years later a farmer is forced to till his ground, it is unclear exactly who would be responsible for the emitted carbon. The emitters are likely to argue that the obligation is no longer theirs since the farmer's sequestration in the past replaced their emission, and that the emitter's obligation was cancelled. That responsibility may fall to farmers, simply by default.
If farmers sell their carbon now, they are in effect gambling that the price of carbon will not drastically increase in the future. If they find that, for one reason or another, they need to buy back some of the carbon which they sold earlier, they may be forced to buy it back at the new higher price. Farmers could become locked in to land management practices that may cease to make sense at some point in the future.
Emission reduction will likely become more strict, requiring further and further emission reductions. Farmers could be advised to put off selling their carbon until the price stabilizes, or at least ensure that, if they sell their carbon now, measures are in place that will guarantee that they will not have to buy the credits back at greatly inflated prices.
Credits representing permanent sequestration of carbon, will likely require a legal mechanisms such as conservation easements to guarantee this permanence. These easements could be a liability, depressing land values for any land that is held under easement.
Permanent agreements to sequester carbon, have important implications:
1. Sinks become saturated. Under any BMP, soil can only hold a certain amount of carbon which means that eventually no new carbon credits are being generated. The sink is effectively "full" and becomes simply a maintenance liability. There is a cost associated with maintaining the sink, as well as with establishing it.
Permanent agreements could place an unfair burden of risk upon farmers.
Temporary agreements can distribute the burden of risk between farmers and emitters. The key is to see them not as a permanent transfer of carbon from farmers to emitters, but as a lease or loan, designed to ease the burden of emission reductions, to be paid back once the industries have their more permanent (and more expensive) measures in place.
Land managers such as farmers (or foresters) could contribute sequestered carbon to this bank - the bank's "capital." This capital (sequestered carbon) could then be leased or loaned on a temporary basis to an emitter to allow them to achieve a short term emission reduction target. Once the emitter has implemented the necessary emission reductions to his operation, the capital would be returned to the sequestered carbon bank. Such a system would provide an incentive for the farmer (or forester) to create and maintain the largest sink possible, without transferring the risk of permanence from the emitter to the land manager. This loan or lease would not substitute GHG removals permanently for emission reductions.
GHG removal and storage in a sink would have some value for as long as the sink is maintained.
If the sink is lost, for example by tillage in the agricultural sector or by fire or disease in the forestry sector, the land manager would forfeit only the right to loan or lease the value of the sink.
A broad based market system for emission reductions would establish the value of the sequestered carbon "capital," and any loan or lease rate could be negotiated using this value and the agreed upon term.
In summation GHG removals with sinks need different policies and markets than GHG emission reductions. A market system for GHG removals that transfers risk from emitters to land managers would likely fail. Farmers and foresters already assume tremendous risks due to the uncertainty of managing biological systems as well as volatile markets. A market system for GHG removals with sinks would not provide any incentive for land managers to adopt best management practices if it adds yet another risk to an already risky operation.
GHG removals with sinks are the only current mitigation tool that actually removes GHGs from the atmosphere. This is a limited opportunity for society and should not be squandered in the early stages of addressing dangerous GHG concentrations in the atmosphere. GHG removals can be very useful as a "bridge" to meet short term GHG targets, allowing emitting industries the time they need to implement permanent emission reductions. GHG emission reductions and GHG removals are very different and therefore require different markets.