Cash from carbon

May 1, 2008 12:00 PM, By Mark Moore

Carbon credits contracts are indeed binding, and producers need to read the fine print to ensure they know what they're getting into, says Gordon Smith, director of EcoLands Program of the Environmental Resource Trust. “Future carbon prices are very uncertain, and all the rules have yet to be written,” he says. “Some producers are willing to take the cash now, while others might think there is a future value and only want a relatively short contract. Most sales are on delivery, and a lot are favoring deals where they can get certain guaranteed payments and share if the price moves higher.

“As carbon sequestration and emission reduction projects are implemented and made public, everyone gets to see how credits are counted,” Smith continues. “Some counting methods are more reliable than others, and the market is sorting out when inexpensive indicators can be used to calculate amounts of carbon credits and when more expensive site-specific measurements are needed. For some aspects of carbon accounting, standard methods are becoming accepted. For other aspects, particularly setting project baselines, no consensus has emerged about what is the proper way to count.”

Political influence

Therein resides one of the promises, or possible pitfalls, of carbon credits in agriculture. Much of what happens in the U.S. carbon credit market will depend greatly on what happens in Congress and who is elected president come November.

“There is a lot of speculation right now, but I would bet that some sort of regulation on carbon emissions will be coming,” Mooney says. “I believe that there will be some sort of cap-and-trade system.”

One uncertainty is how soil carbon credits will work into the equation. “Because of the strength of the agricultural lobby, I would be surprised if agriculture is left out of any legislation,” Mooney says. “The government has funded an enormous amount of research into agricultural carbon credits. But we won't know until the document is crafted how it will ultimately impact agriculture.”

Current legislation has focused on the Warner-Lieberman bill. Officially titled America's Climate Security Act of 2007, it would require, in part, establishment of a greenhouse gas transfer system. For agriculture, it would provide a method for “selling, exchanging, transferring, submitting, retiring, or borrowing emissions allowances.”

When regulatory markets are established, the regulators specify what does and does not count as an emission offset. “Some things now sold in the voluntary market will not be recognized and will not count as offsets in the regulated market,” Smith says. “Though the disallowed credits will have no value in the regulatory market, they might still have value in a voluntary market.”

Dave Krog, CEO of AgraGate, says there's a good chance that legislation in some form will be passed in the next 18 months.

There also could be additional opportunities for the capturing of carbon credits on the farm. “Soil carbon credits are being used now, but there are other opportunities that could become available, such as reducing farm fuel usage by changing farming practices,” Miller says.

“It's not a real big moneymaker, but it's still money in your pocket,” Recker says. “You won't get rich with carbon credits, but in a small way you are helping other companies and doing your part for the environment.”