the upper estimates of this potential will depend on adoption of the right incentives and policies to assist farmers to adopt practices that will sequester carbon (Pew Center on Global Climate Change, 2006).
Carbon Sequestered on Agricultural Lands And Potential Annual Revenues from Sales Sale Price of Carbon
260 MMTCO2 per year
810 MMTCO2 per year
$10 per ton of CO2
$2.6 Billion
$8.1 Billion
$20 per ton of CO2
$5.2 Billion
$16.2 Billion
$30 per ton of CO2
$7.8 Billion
$24.3 Billion
Source: Pew Center on Global Climate Change 2006
{
…a mandatory program for reducing greenhouse emissions could produce substantial net economic gains for rural communities …
}
Wildlife Agencies has established a Carbon Sequestration Working Group to explore these opportunities, while Ducks Unlimited already manages its own sequestration program on lands it purchases for waterfowl habitat. Future Mandatory Carbon Markets Absent a mandatory regulatory cap and trade program for greenhouse gases, the market for carbon credits is likely to remain relatively small and the value of such credits will, accordingly, remain relatively modest. Assuming a mandatory policy is eventually adopted—as most observers now believe is a foregone conclusion—producers’ ability to benefit from reductions generated by the agriculture sector will depend primarily on the ultimate carbon price set by the market and farm-based sequestration and emissions reductions are handled within the larger program architecture.
The potential sale of carbon that can be sequestered in U.S. cropland soils alone, in addition to what is being sequestered currently, is worth anywhere from $2.6 to $24.3 billion annually in a functioning greenhouse gas market, depending on the sale price of carbon. These figures are based on estimates by scientists that the potential to store soil carbon on croplands ranges from 260 to 810 MMTCO2 per year, and using hypothetical carbon prices of $10, $20, and/or $30 per ton of CO2. As noted by studies of agricultural mitigation options for climate change, however, attainment of
Other Agriculture-Related Revenue Effects of Carbon Caps While it is clear that a nationwide mandatory cap on greenhouse gases will create a much larger and more lucrative market for agricultural carbon credits, it should be noted that it will generate other sources of income for producers. For example, carbon caps will increase gasoline prices, which in turn will lead to higher demand for, and market prices for, low-carbon biofuels. California’s new Low-Carbon Fuel Standard, which is designed to increase biofuels demand in that state from 955 million gallons today to 3–5 billion gallons per year, provides an early example of this dynamic.30 Higher demand for low-carbon fuels, in turn, will allow ethanol producers to operate profitably at higher corn prices. Moreover, farmers, ranchers, and other local businesspeople invested in ethanol plants can expect to see higher annual returns on their investments than would otherwise be the case. Carbon caps also will create demand for biomass that can be co-fired with coal and other fossil fuels in power plants to reduce carbon emissions associated with electricity production. Finally, higher energy costs will encourage farmers to shift to less energyintensive practices like low-till and no-till farming. To some extent, these economic benefits will be offset by higher energy costs, since the ability of farmers and ranchers to conserve energy is not unlimited. The question is whether, on balance, mandatory policies to limit greenhouse gas emissions will create net costs or net benefits for agricultural producers.
State of California, Office of the Governor. “The Role of a Low Carbon Fuel Standard in Reducing Greenhouse Gas Emissions and Protecting Our Economy.” White Paper. 2007.
30
56 Competing and Succeeding in the 21st Century: New Markets for American Agriculture
THE 21ST CENTURY FARM: Carbon Credits and Income Generation
A useful illustration of the impact of emerging carbon markets for a 1000 acre farm was produced by Chuck Rice and Debbie Reed for their report, “Soil Carbon Sequestration and Greenhouse Gas Mitigation: A Role for American Agriculture,” March 2007 (see table III.B). At carbon prices of $4 per ton—roughly the amount available today through the CCX—a 1000 acre farm would generate an additional $3,940 per year. At $10 per ton of CO2, annual income rises to $11,050, while at $20 per ton of carbon, annual carbon market income for a 1,000 acre farm is $22,100.
CRP Riparian Forest Animal Waste Lagoon
Tree Planting Grass Waterway
Bioenergy Crops: Switchgrass
No-Till Field
Table III.B The 21st Century Farm: Potential annual income generated from carbon credits on a “model” 1,000 acre farm Practice Soil Area Total Value Value Value MT (acres)* Soil Credit $4/Ton $10/Ton $20/Ton CO2/a/y Riparian Forest
NA 40
Grass Waterway 3.00 50
150
600
0.45
100 45
180
CRP 3.00
100 300
Bioenergy grass crop
0.20
200 40
No-till Field
0.75 500 375
Anaerobic Methane Digester for Animal Manure Treatment
NA 50*3 300
Tree Planting 2
Total ($)
Other Credits1 CO2/a/y
Value $10/Ton
0.70?
1500 3000 450
900
0.70
700
1200 3000 6000 160
1600 3200 5.0
1500 3750
3,940
750 11,050
10000
7500 1500
1.5*3
750
22,100
* Figure reported as head of cattle, rather than in acres O ther credits generated could include: carbon accumulation in woody biomass (Heath et al., 2003a) and from the use of perennial grasses for cellulosic ethanol production, with the ethanol substituting for fossil fuel use (Nelson personal communication), and methane credits (per head of cattle) from managing an animal waste lagoon, with the installation of an anaerobic methane digester. 2 (Heath et al., 2003b) 3 The amount of credits awarded by CCX in association with use of an anaerobic methane digester to handle cattle manure is approximately 1.5 MT CO2/head/year (Personal communication with Dave Miller, Iowa Farm Bureau, 2007). 1
Competing and Succeeding in the 21st Century: New Markets for American Agriculture 57
