Thursday, January 31, 2008

Ag Needs to Weigh in on "Offsets vs Allowances" Issue

One of the big brewing issues of an ag offset market within climate legislation is whether to set up the program as an offset market as we have discussed here briefly (a free market where emitters of GHG emissions can buy reductions of those emissions from the agriculture industry and others) OR to get a portion of the overall emission allowances (or rights to pollute) to sell on the market and use as funding for a USDA carbon program.

Both of these options have pros and cons -- agriculture should have the ability to CHOOSE EITHER OPTION which is what the Lieberman-Warner bill allows. But be wary of the allowances only option -- which is what most of the environmental groups want for agriculture!!

For example -- take a look at an excerpt from a fact sheet that is being circulated by the Natural Resources Defense Council and World Resources Institute.
"The Chairman’s Mark directs the U.S.D.A. to allocate 5 percent of allowances to achieve the maximum amount of permanent and additional emission reductions and sequestration possible. If biological sequestration and emission reductions from programs supported by the U.S.D.A. are less expensive than the market price of allowances, the U.S.D.A. could be expected to require more than one ton of emission benefits for every allowance allocated. Modeling by the Nicholas Institute of Duke University and the U.S. EPA indicates that such a situation could arise after 2025.4 While this scenario would be contingent on several other factors including the demand for biofuels, the value of agricultural land for other purposes and in what way states include terrestrial sequestration in their own climate change programs, additional reductions beyond those reported here could be achieved. For example, if set aside recipients were able to sell allowances in 2050 for $100/ton and obtained reductions for $35/ton then 160 MMTCO2e of additional net emission reductions would be achieved, bringing the 2050 reduction to as much as 69% from 2005 levels."
-- Natural Resources Defense Council& World Resources Institute fact sheet
I know this is rather confusing -- but the bottom line is that these organizations want you farmers to do the work and not get the full market value for it because it will be a government program RATHER THAN A MARKET.

See the full NRDC/WRI fact sheet by clicking here

To help make sense of this -- and offer some talking points for those of you who want to engage on this topic, I and some friends have come up with a response fact sheet below.

Offsets Versus Allowances:

What do these provisions mean for the Agricultural Sector?


  • Allows free-market participation for agriculture
  • Income opportunities for agriculture are only limited by the amount of offsets allowed by the policy: a cap on offsets limits income potential for agriculture
  • Agriculture receives market value for each ton of carbon sequestered or reduced: buyers will pay whatever price the market will bear


  • Not a free market opportunity for agriculture
  • This is a government-administered (USDA) program
  • The value and payment for tons sequestered or reduced by agriculture will not be determined by market value, but will be determined by the government (USDA)
  • Consider this language from NRDC and WRI[1], regarding what they consider the function of the allowances provision to be:

If biological sequestration and emissions reductions from programs supported by the USDA are less expensive than the market price of allowances, the USDA could be expected to require more than one ton of emissions benefits for every allowance allocated.”

In other words, if it costs a producer $25 to sequester a ton of carbon, but the market price for carbon is $100, the producer will have to sequester 4 tons of C to receive an allowance from USDA that is equivalent to one ton.

· This would prevent agricultural producers from getting market price for their emissions reductions.

· This treatment is not being considered for any other sector.

A comparison of payments received by agricultural producers under the offset system, and under the allowances system, as proposed by the NRDC/WRI analysis:


Costs to agricultural producer to sequester 1 ton C = $25.00

Market price of carbon allowances per ton of C = $100.00

Offsets Provision: Allowance Provision

Ag payment received for 1 ton C = $100[2] Ag payment received for 1 ton C = $25.00

[1] Greenhouse Gas Emission Reductions under the Lieberman-Warner Bill (S.2191): Full Committee Chairman’s Mark with Boxer 1st Degree Amendment, by Daniel Lashof, Climate Center Science Director, NRDC, John Larson, Associate (WRI), and Robert Heilmayr, Research Assistant, Climate and Energy Program, World Resources Institute. December 4, 2007.

[2] Note that this does not include discounts that may be applied for measurement uncertainty or leakage, which are being considered as part of both offsets and allowance provisions in cap-and-trade policies.

Tuesday, January 29, 2008

Measurement, Monitoring & Verification overview

I have received a lot of questions/interest in more information on measurement, monitoring and verification (MMV) of ag offsets. So, I've uploaded a brief powerpoint presentation I use to talk about the research being done in this field and overall project design for potential carbon aggregators using the "Duke Standard" of measurement.

To see the presentation, simply scroll all the way to the bottom of this blog, and click on the forward arrows in the bottom left hand corner.


Monday, January 28, 2008

WashPost story: Value of US House's Carbon Offsets is Murky

The story below from yesterday's Washington Post is great example of how the ag offsets issue has gotten a bad name with policymakers and the public. This article doesn't get into the weeds of the policy -- it just looks at the issue from a 20,000 foot level and makes pronouncements about the weeds from there. Bad idea!

The gist of the article is that the House of Representatives spent all this money buying GHG "offsets" from the Chicago Climate Exchange (CCX) and now there is a big critique of the whole transaction because the money went to people who were going to do no-till anyway -- so it didn't pay for any change of behavior, it just sent more money to people who were already doing soil sequestration. (The full article is below my post)

Things to remember and possibly pass on to policymakers regarding this article:
  1. There is no mandatory market right now -- so there is no system for fully vetting, measuring, monitoring -- oh, and fully compensating the producers of GHG reductions from ag practices. As a result, you can't really call these reductions offsets -- they are coming from a pilot program that has done a lot of good. That is a world away from a mandatory system that pays a market price for GHG reductions. Don't judge the voluntary pilot project by the same standards that actual traded offsets would need to meet -- its apples and oranges.
  2. Soil carbon accumulates over time, so while no-till practices may have been underway for 5 years, for example, there is NEW carbon stored each year. What you are paying for when you contract with a grower to continue to do no-till is a guarantee that the new carbon going into the ground will stay there for a given period of time. The problem comes when payment is given for a practice but there is no measurement of the carbon to back it up -- something that will be added into a mandatory GHG market program.
  3. This article is proof positive of what I've been saying about traditional environmentalists NOT wanting the ag offsets option to thrive. Look at the tone of this article -- the view that offsets are "paying to sin" or are some form of an indulgence. I hear this over and over from enviros and some in the public now too. It shows a COMPLETE ignorance as to what offsets really are. Indulgences were a corrupt system whereby people paid for absolution. Ag offsets are a lower cost means of reducing GHG emissions. Just because its more efficient, cheaper and provides multiple environmental benefits does NOT mean its a bad thing. But for those who want to "punish" industry rather than solve the problem -- things that make it easier for industry to comply with emissions reductions are deemed bad as well. You only understand this viewpoint by engaging in the issue -- and only then can you (as an industry) correct the record.
  4. The need for a robust measurement, monitoring and verification system HELPS the ag industry far more than it hurts it. I know some out there are concerned when I talk about needing a very robust system for MMV (measurement, monitoring and verification), but there is a good reason for it. We know that soil carbon can be measured, monitored and verified -- the science is good on this. So while it may be complicated at first and expensive to get the system started (problems that can and should be addressed in the climate bill), the outcome of a robust, scientifically backed system is that it completely takes the air out of the stories like this that can say the offsets weren't measured and can say that the offset projects would have happened anyway. (I know the issue of early adopters is a tough one -- I plan to talk more about that in a later post).
Washington Post
Value of U.S. House's Carbon Offsets Is Murky
Some Question Effectiveness of $89,000 Purchase to Balance Out Greenhouse Gas Emissions

By David A. Fahrenthold
Washington Post Staff Writer
Monday, January 28, 2008; A01

The House of Representatives has presumably learned that money cannot buy love or happiness. Now, it turns out it's not a sure solution to climate guilt, either.

In November, the Democratic-led House spent about $89,000 on so-called carbon offsets. This purchase was supposed to cancel out greenhouse-gas emissions from House buildings -- including half of the U.S. Capitol -- by triggering an equal reduction in emissions elsewhere.

Some of the money went to farmers in North Dakota, for tilling practices that keep carbon buried in the soil. But some farmers were already doing this, for other reasons, before the House paid a cent.

Other funds went to Iowa, where a power plant had been temporarily rejiggered to burn more cleanly. But that test project had ended more than a year before the money arrived.

The House's purchase provides a view into the confusing world of carbon offsets, a newly popular commodity with few rules. Analysts say some offsets really do cause new reductions in pollution. But others seem to change very little.

To environmentalists, the House's experience is a powerful lesson about a market where pure intentions can produce murky results.

"It didn't change much behavior that wasn't going to happen anyway," said Joseph Romm, a senior fellow at the Center for American Progress who writes a blog calling for more aggressive action on climate change. "It just, I think, demonstrated why offsets are controversial and possibly pointless. . . . This is a waste of taxpayer money."

The House bought its offsets through the Chicago Climate Exchange, a five-year-old commodities market where greenhouse-gas credits are traded like pork bellies.

This month, officials at the exchange vigorously defended the sale, saying the House's purchase had done a great deal of good by funneling money to those who were helping to combat climate change.

"It basically rewards people for having done things that had environmental good in the past and incentivizes people to do things that have environmental good in the future," said Richard Sandor, the exchange's chairman and chief executive.

He rejected the argument that the exchange shouldn't sell offsets until it can prove that the pollution reductions wouldn't have happened if the money wasn't paid. "We can't, as an exchange, trade hypothetical things," Sandor said.

The offset purchase was part of a Green the Capitol initiative, begun after Democrats took over last year. House leaders bought compact fluorescent light bulbs to save energy and ordered the Capitol Power Plant to burn natural gas instead of dirtier coal. For emissions they couldn't avoid, they bought offsets: 30,000 metric tons at about $2.97 per metric ton.

The Senate has taken some similar steps to reduce energy use but has not purchased offsets.

Daniel P. Beard, the House's chief administrative officer, said he asked the Chicago exchange for offsets based only on U.S. projects. But, he said, he asked not to be told where the projects were, so representatives could not buttonhole him about projects in their districts.

The carbon offset market has taken off in the United States -- worth an estimated $55 million, according to a study last year -- despite its odd-sounding premise. Its stock in trade is, in essence, a claim that some pollution might have been emitted but wasn't.

In Europe, offsets are regulated and often expensive, more than $30 per metric ton. In the United States, offsets are hardly regulated and generally far cheaper.

Many environmental groups say any offset must meet one all-important criterion, called "additionality": Buying an offset must cause some new reduction in emissions that wouldn't have happened if the money hadn't been paid.

"If you don't have additionality," said Mark Trexler, a consultant in Portland, Ore., who advises companies on offset purchases, "you know what you're getting. You're getting nothing."

A review of three projects that got about a third of the funds from the House's offset purchases shows that, in all three cases, it did not appear that offset money was the sole factor causing any of the projects to go forward.

About $14,500 of the House's money went to the North Dakota Farmers Union, some to pay farmers to do "no-till" farming. The farmers stopped using conventional plows and instead make tiny slits to plant their seeds. The practice increases the amount of carbon, a component in heat-trapping carbon dioxide, kept in the soil. But organizers said that some farmers had started the practice before the offset money came in because it saves fuel, brings in federal soil-conservation funds and could increase crop yields.

"When we first started, the financial incentive was trying to raise better crops . . . and that's still the biggest incentive," said Mark Holkup, who raises wheat and sunflowers in Wilton, N.D. He said, however, that the contract for his offsets would prevent him from abandoning this practice in the near future.

That's a troubling sign, according to Wiley Barbour, director of Environmental Resources Trust in Arlington County, which evaluates the worth of potential carbon offsets.

"If they say, 'Well, they were already doing no-till,' then immediately that raises a big, red flag," Barbour said. "Nothing changed."

Another $14,500 went to a project that enabled a power plant near Chillicothe, Iowa, to burn switch grass instead of coal. This was a test program to learn more about making power from plant matter, and it reduced the facility's emissions for 45 days in spring 2006. Officials conducted the test with the expectation that they would get offset money.

Would it have happened in the absence of such funds?

"I don't know," said David Miller, of the Iowa Farm Bureau Federation, who helped broker the deal.

About $1,400 went to the Nez Perce Indian tribe to pay for tree plantings on tribal land in northern Idaho. Trees absorb carbon dioxide as they grow.

An official involved said the offset money was welcome in this case but was not the only factor that made the project worthwhile.

"No one is changing any practices for carbon offsets right now, because it doesn't make economic sense" with prices so low, said Ted Dodge, executive director of the National Carbon Offset Coalition, based in Butte, Mont., which handled the transaction.

Rep. Vernon J. Ehlers (R-Mich.) said this month that he was concerned about the real effect of the House's offset purchase.

"This is just extra money in their pocket for something they're already doing," Ehlers said. A member of the House committee that oversees Beard's office, Ehlers said he wanted the money spent on energy-efficiency measures on Capitol Hill.

But Beard said he did not regret the purchase, despite questions about the role that offset money played in the individual projects.

"Whether they were going to do it or not" without the House funds, "the point is that they did do it."

Staff researcher Meg Smith contributed to this report.

Ag Offsets: Claiming the Credit Agriculture Deserves

Hello and welcome to a blog dedicated to discussing the potential and politics of agriculture "offsets" within mandatory climate change legislation.

What are agriculture offsets? Simply put, agriculture has a number of ways to reduce existing greenhouse gases (GHG) from the atmosphere (by storing it in soils and trees) as well as avoid future emissions by capturing methane from manure and using precision ag fertilizer application. None of this is in dispute -- what IS in dispute is whether agriculture's ability to reduce or avoid GHG emissions will be counted in law that will create the carbon/climate market.

Before we get too far -- first let me say a few words about what this blog is and is not designed to do.
  1. This is not a place to debate climate science. Quite frankly, that issue doesn't matter because there will be a climate change law in the next 2 years (likely) just ask the multitude of corporations who have all openly supported taking mandatory action to reduce GHG emissions -- action that will regulate themselves. Corporations are now shaping what the climate law will be to their advantage -- I hope agriculture as an industry will engage in this process as well because it has so much to gain.
  2. This blog IS a place to discuss the science of soil carbon sequestration, methane capture from manure, nitrogen precision application and the ways to measure, monitor and verify GHG reductions that come from agricultural conservation practices in general
  3. This blog IS a place to discuss the politics of the climate change law and how it can be managed to benefit the agriculture industry.
  4. This blog IS a place to hear from some of the farmer leaders that I've been working with and learning from for over 2 years on the ag offsets issue and get connected with soil scientists and ag economists who have been looking at the potential benefits and costs of an ag offset market.
So - you may wonder why I'm doing this -- what's my angle -- and my background? Fair questions. I came into this issue in a most unusual way. I first learned about all that agriculture can do to reduce GHG emissions when I started working for Sen. Sam Brownback (R-KS) back in 1999. As a congressional staffer, you have the luxury of getting to listen and learn from a whole host of really smart people -- and I got briefed from folks ranging from Kansas State University soil scientists to USDA to environmental groups like Environmental Defense and The Nature Conservancy. When you get a consistent picture from a wide variety of sources like this, it makes an impression.

While I was working for the Senator -- I drafted two bills for him which would have created incentives for farmers domestically to adopt practices like no-till that we know take carbon dioxide (the leading greenhouse gas) out of the atmosphere and store it in the soil. The second bill was an international one and would have created tax incentives for companies who helped preserve rainforests in developing countries (wouldn't we all like to see Brazil keep its forests!!)

Working on these bills and a few amendments for the Senator, I learned a lot about the politics of this issue as well. Odd as it seems, most of the environmental groups did not -- and still do not want to give credit to agricultural practices and products (like ethanol) that either reduce GHG or take those emissions out of the atmosphere. Unfortunately, most in the agriculture policy world at that time were not interested in this issue either -- seeing it as merely linked to "Kyoto" or later "Al Gore" and to higher energy costs that would outweigh any small benefit.

I stopped working for the Senator in 2003 and since went on to continue this work for the environmental group Environmental Defense -- because I was so impressed with their focus on solutions rather than traditional environmentalist politics. Now I am working as a consultant on this same set of issues -- working with clients to get ready for the carbon market to come -- and claim their rightful credit in the system that is being designed as we speak.

Over the years, the climate change issue has picked up steam (pardon the pun) and resonates more with the public than ever before. You can't hardly pick up a newspaper or magazine or watch a TV newscast without seeing some type of climate related story. And, although I said this is not a place to debate the science, it is important to note that scientists have been increasing both their consensus and their confidence in the climate science as they see it. All of these factors have led many corporations who used to oppose mandatory action to reduce GHG emissions, now to openly support such action. Below is a chart that shows the corporate logos of the companies that now support a mandatory cap-trade policy for GHG emissions:

A picture really is worth a thousand words. With companies like these all supporting mandatory climate legislation on top of all the environmental groups, it is only a matter of when and what will be passed -- it is NOT a matter of whether a mandatory limit on GHG will be passed into law.

Once you realize this fact, and you also know that estimates say the carbon market (which is short for all the greenhouse gases) could provide roughtly $15 billion annually to the agriculture industry -- ON TOP OF THEIR EXISTING CROPS NOT INSTEAD OF THEM, you start to see how critical it is to grab hold of this opportunity and shape it in ways that will help cut our dependence on foreign oil and infuse rural America with a whole new "green" industry. If done right, it really doesn't matter if you don't believe in climate science -- the benefits that could arise from a market that pays farmers to grow more renewable energy are huge.

But as I mentioned before, this opportunity is under attack -- mainly from the more traditional environmental groups. What I still can't get over is that most of the farmers I work with think I'm too "green" and yet I'm the biggest critic you are likely to find of the environmentalist community as a whole. But since farm organizations have not been at the forefront of this issue, it has been shaped, negatively, by those who want to use the climate issue to "punish" industry rather than solve problems.

The good news is there is still time to grab hold of the climate change momentum and use it to terrific ends for agriculture by establishing an unfettered ag offset market. I'll talk more in later posts about what counts as an offset and how you measure, monitor, verify, etc -- but for now -- please accept my e-invitation to join in the discussion . . . and add your insights, comments, questions and political connections to the cause of claiming the credit for agriculture that it richly deserves on this issue.

Til next time,