Canada has ratified the Kyoto Protocol and has released its Climate Change Plan. Kyoto's intention is to reduce greenhouse gas levels in the atmosphere. There are two methods to do this. The first is to reduce emission levels and the second is to remove and store (sequester) CO2 as carbon in forests and ag soils (carbon sinks). We must give the Canadian government full credit for the efforts they made in getting international recognition for ag sinks.
The challenge we face as farmers is to see that the value accrues to the farmers who use the Best Management Practices (BMPs) that sequester carbon. To explain, this let's use a 'garage' analogy. Farmers that employ BMPs such as zero-till, direct seeding and seeding permanent cover remove and store CO2 in the soil. (In terms of our analogy farmers create carbon storage "garages".) These ag sinks (or carbon garages) were recognized in the Marrakech round of the Kyoto negotiations as RMUs (emission removal units) and create tradable offsets. RMU offsets and ERU (emission reduction units) offsets will be tradable internationally. These may both translate into ERC, (emission reduction credits) in domestic markets. We will talk about market structures later.
Our federal government has complicated this RMU offset market by proposing that there be two pools of offsets. One pool is called business as usual (BAU) offsets and the other pool is tradable offsets. Both pools will be used to meet the nation's Kyoto commitments. Let's for the sake of our analogy call the BAU offsets RED garages and the tradable offsets GREEN garages. The difference in the market place is that the RED garages are to be owned by the Federal government and the offsets will be used to lower the Nation's emission targets. The GREEN garages are the property of farmers and have value in the Emission trading market place. Farmers will only be able to use GREEN garages in emission markets. RED garages will have no value for the farmer.
This is difficult to comprehend since both the red and green garages are created as a result of individual farmers' actions and will be maintained by those same farmers. The question farmers now need answered is "Are the garages on my farm RED ones (the property of Canada) or GREEN ones (have value to me)?"
The Canadian plan at this time does not offer a clear definition of what makes a garage RED or GREEN but until told differently we can assume that the color of the garage is dependent on when the farmer adopts the BMPs that build the garages. This is to say that if you started BMPs like zero till, direct seeding or seeded permanent cover any time before 2008, all your garages are RED and are the property of the Federal government. If you start the same BMPs like zero till, direct seeding or seed permanent cover after 2008, your garages are all GREEN. This will become extremely complicated.
In Saskatchewan, with nearly half of Canada's cropland and a large adoption rate of BMPs, a very large proportion its garages will be RED. It stands to reason then that farmers will want GREEN garages in order to receive value for their efforts.
If you are not presently direct seeding or are planning to seed permanent cover in the near future, this Federal plan is telling you that if you want to benefit from the offsets created, it would be prudent not to start until 2008. BAU offsets will discourage ag sink creation.
What if you already have "RED garages"? Presumably you could burn them all down through the use of lots of tillage and then at a later date replace the valueless RED garages with GREEN ones starting in 2008. Why would Canada implement a policy that results in a perverse incentive to preserve ag soil sinks? Whether the carbon is stored in a RED or a GREEN garage is irrelevant as far as the greenhouse gas concentration in the atmosphere is concerned. The intent of Kyoto is that CO2 be removed from the atmosphere be stored in the soil and not be released back into the atmosphere.
How should farmers approach the (tradable offset) market place? There will be domestic markets (where the color of your garage seems to matter) and an international market, which presumably will be colorblind. Perhaps farmers should ignore domestic markets and insist on participating in International markets that have no bias.
The existence of RED garages may eliminate or at least severely impact the market for GREEN ones. An emitter needing some place to store surplus emissions may not be willing to lease a GREEN garage from a farmer if it could turn into a RED garage. The two offset pools will certainly delay the development of any market system until the definition of what is RED and what is GREEN is clear.
Likely farmland that has only RED garages (no market value) will be worth less than land with GREEN garages. Not only will the early adopter be denied a potential revenue source afforded only to the adoption laggard the value of his land will also diminish.
Let us now forget about color and explore market mechanisms. There have been a few offers to buy ag sink offsets. These offers have been put together by Emitters that want to purchase offsets, and traders that want to be middlemen hoping to profit from the transactions. They treat RMUs as a commodity and appear to involve carbon or conservation easements.
We all must recognize that sinks are a biological process and can be lost as well as created, sometimes by default and sometimes by intent. For example a forest sink could be lost by fire (default) or harvesting the trees (intent). Ag soil sinks can be destroyed by employing tillage (don't like red garages) or any one of many factors like drought, increased summer fallow or tillage to control weeds. The first example is intent; the rest are by default. Selling Ag sink offsets would be the same as expecting farmers to provide a carbon storage garage with a perpetual maintenance contract. Will the Federal government provide perpetual maintenance for the RED garages? It is unfair to expect farmers to both provide the RED garages and expect perpetual maintenance with no recognition. Regardless of color, preserving these garages is an issue.
Hopefully the RED/GREEN garage debate will leave the farmer with some GREEN garages. Clearly using garages as a commodity (selling them) with a perpetual maintenance contract would require farmers to assume an unreasonable level of risk (Bennett and Mitchell 2000). A more sensible approach would be to lease the garages. To explain this concept we will borrow an analogy from a paper (Marland et al).
In this analogy, a party (someone with surplus emissions) can lease a garage (hopefully painted GREEN) to park his car (surplus emission). At the end of the contract he can renew the lease. Or find another place to park his car. The party may have used the lease term to find a better lease agreement else where, built his own garage, or has decided to park his car on the street and suffer the regulatory consequences. The party may have found another mode of transport (reduced emission levels), and may no longer need the garage. Then it would be available again for lease to another party. There is also a possibility that the garage owner (farmer) may need to use the garage himself.
A lease arrangement was signed between the PNWDSA (Pacific Northwest Direct Seed Association) and an energy consortium, Entergy. This agreement leased RMU offsets supplied by farmers to Entergy for a fixed time period for an agreed on price. This agreement spelled out the maintenance obligation assumed by the farmer as well as the term of the agreement.
The most sensible way to approach the ag soil sink issue is to use a contractual agreement for both BAU and tradable offsets that works like a storage lease. Farmers should get recognition and value for creating, and preserving all the ag soil sink offsets Canada uses to meet its Kyoto commitments.
The current Federal plan will act as a perverse incentive for farmers to continue current BMPs that preserve ag soil sinks. This plan will also discourage farmers not currently practicing BMPs from adopting them and adding to ag sink potential. The decisions determining Ag sink creation and maintenance will be made by individuals on a farm by farm basis. A plan that does not support good current BMP practices and delays their future adoption would not be in farmer's or the Nation's best interest.
If the maximum contribution that ag soil sinks can make towards Canada's Kyoto targets is not achieved it will, by default, lead to higher cost emission reduction measures domestically and a greater reliance on international credits purchased offshore.
We should all keep in mind the "Little Red Hen" story, substituting the carbon storage, for the making of the bread. The farmer after all makes the decisions, buys the machinery, purchases the inputs, supplies the management and does all the work that creates the carbon sink as well as providing for its future maintenance. The Federal government is like the Little Red Hen's friends who provided none of the work and very little of the investment to make the bread but want a large share of the loaf.
It is only fair that farmers receive recognition and value for their investment, and efforts in creating, and maintaining the emission storage garages (ag sinks) that Canada will need to address Kyoto.