Transcript Laura Sands - "Not your fathers carbon market"

The Clark Group, LLC
Not your Father’s Carbon Market: An
Update from Agriculture’s Point of View
Laura Sands
How would a carbon market work?
Regulated
Entity
Agriculture Offset
Aggregator/ Verifier
Low Carbon
Fuel
Production
Reforestation
Soil Carbon
Sequestration
Projects
Methane
from Manure
Capture
Direct
Emission
Reductions
What agricultural practices would qualify?

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
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No or low till
Methane capture or flaring from dairies
Reductions in nitrous oxide emissions from
use of precision agriculture or split application
of fertilizers
Grassland management or forestry
Overview
 Legislation
to Watch
 Politics & Process
 Measurement
 Market Potential—A very different
scenario
LEGISLATION TO
WATCH
Why Congress is interested in Ag?

Ag can play a role in climate reductions
because it can store carbon in soils and
biofuels are low carbon solution
Each “Decarbonizing
Wedge” represents
25 billion tons of
carbon avoided or
reduced.
7 wedges needed
to reach stable
carbon emissions.
Source: Robert
Socolow & Stephen
Pacala; Scientific
American, Sept. 2006
Cap-and-Trade:
Is Climate Legislation Coming?


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110th Congress: 165 climate change bills,
resolutions, amendments introduced by July,
2007*
Some bills -- not all --would allow a role for
agricultural sinks, other agricultural emissions
reductions
11 major bills in Senate, 10 in House,
would/might provide some credit to agriculture
for emissions reductions activities
*Pew Center on Global Climate Change, www.pewclimate.org
Key emerging forces

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House Dingell draft bill—includes some role
for ag
President Elect Obama is committed despite
economy (as was Senator McCain)
The Supreme Court has opened the door to
regulation of GHGs, which could have an
adverse impact on ag. Cap and trade would
override court decision.
Lieberman-Warner Bill
(Environment Committee)

Allows GHG emitters to meet up to 15% of
their required reductions by purchasing
agriculture offsets

Provides 5% of emissions allowance for the
agriculture industry (through USDA) to
establish government program to reward
carbon-friendly practices
Tale of two proposals:
Cap-and-Trade: What Role for Agriculture?
S.2191 – The Lieberman-Warner Climate Security Act
of 2007
 Offset projects include ag and forestry sinks
 Rigorous project plans, incl. procedures to monitor,
quantify and discount ag and forestry offset projects
 Discount protocols for MMV, leakage, additionality
 Ensure permanence by mitigating and
compensating for reversals; annual certification
 Procedures for 3rd party verifiers/verification
Bingaman-Specter Bill
(Energy Committee)
 No agriculture offset market
 Provides agriculture industry with 5% of
emissions allowances to establish
government program to reward carbonfriendly agriculture practices
 Contains an economic “safety valve” which
caps the price of carbon at $12/MTC02e
 Allows companies to pay a government fund
rather than offset market or make reductions
Cap-and-Trade:
Is Climate Legislation Coming?



House Energy and Commerce Committee, led by
Chairman John D. Dingell, introduced the 1st white
paper on Climate Change October 3, 2007, “…as
we move towards development and eventual
passage of comprehensive climate legislation.”
Conclusions: “The US should reduce GHG
emissions 60-80% by 2050.”
“The central component of this program should be a
cap-and-trade program.”
Cap-and-Trade:
Is Climate Legislation Coming?
Dingell/Boucher White Paper:
 “The agricultural sector’s direct emissions
generally should not be included in the
cap-and-trade program because of
difficulties monitoring emissions and large
number of sources with low emissions.”
 “This sector may present opportunities for
emission reductions that would be
measurable and might then provide offset
or credit opportunities.”
CLIMATE POLITICS
CHANGING
Major confluence of events

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Democratic Congress
Business is supportive
Agriculture sees opportunity for major
revenue stream
Court decision is key
“USCAP urges policy
makers to enact a
policy framework for
mandatory reductions
of GHG emissions from
major emitting
sectors . . .
The cornerstone of this
approach would be a
cap-and-trade
program.”
www.us-cap.org/
Cap-and-Trade:
Is Climate Legislation Coming?
Relevant US-CAP Principles:
 Congress should immediately enact capand-trade legislation to reduce emissions
60-80% below current levels by 2050
 Capped entities should be permitted to
meet part of obligations through purchase
of verified emissions offsets from a range
of domestic sinks and emissions sources
What do (or should) we want?

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Ag should argue for unlimited agricultural
offsets. This would bring down the cost of
compliance—support from utilities
Generate potential for billions of revenue for
ag-based GHG reductions
Combination of allowance and offset may be
best option—especially for early adopter
protections
Stabenow amendment

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Called for 1 billion ton carbon limit—higher
than Lieberman Warner
Had support of coalition of ag groups and
utilities
Supported by Lieberman and Warner
Bipartisan co-sponsorship
Framework for moving forward
Workable and verifiable offsets
The science of
sequestration
Consortium for Agricultural Soils
Mitigation of Greenhouse Gases
Kansas State University
Iowa State University
Montana State University
Ohio State University
Texas A&M University
Colorado State University
Michigan State University
University of Nebraska
Purdue University
Pacific NW National Labs
“Duke Standard” Measurement Guide
Authors/Advisory Committee from:
Texas A&M University
Colorado State University
University of New Hampshire
Institute for Lifecycle
Environmental Assessment
Rice University
Holland & Hart LLP
Environmental Resources Trust
Princeton University
Kansas State University
Stanford University
Brown University
Duke University
What’s different this time around?
We will have a market—
A real market is not business as usual

Carbon per acre prices of
$1.50/acre

No incentives to buy from
ag


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Carbon prices that could
generate between $15-$25
an acre—for practices

Ag is best low-cost solution
for rapid reductions

Publicly traded commodity

Potential for ag groups to
aggregate and make $
Protocols not transparent
No significant money for
aggregators, price is low
MARKET
POTENTIAL
Illustrative Ranking of Carbon as a Crop in U.S.
Per Proposed GHG Limits in Senate Bill 280
(Lieberman-McCain) 1/12/07
Carbon at $10/MT CO2e,
20
15
10
in c
gra
ean
s
soy
b
hay
nge
s
p ot
at o
es
gra
pes
cott
on
whe
at
CA
RB
ON
ora
ri ce
tom
at o
ce
fre s
h
le tt
u
s
ond
alm
ns
bea
oat
s
0
orn
5
dat
es
nec
tar
ines
cuk
es
Production Value ($B)
25
[Crop Source: USDA - National Agricultural Statistics Service – US Crop
Rankings - 1997 Production Year Ranking Based on Value of Production]
Estimates for a mandatory carbon market

Mandatory carbon market price
estimate = $10-20/MMTC.

To get a more realistic picture of
potential market value, let’s assume
$15 MMTC
Will any of this be easy? No.

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Major opponents are energy industry
Some utilities
Competing policy ideas which would exclude
agriculture
Some pressure on the left which would also
exclude ag
A little information is not a good thing
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Coal and railroad alliance has amassed a $30 billion
war chest
Junk studies (CRA, Searchinger)
Serious pushback from oil interests who want a
carbon tax (keeps them on top); or safety valve
Alignment against ag offsets continues on the left
SOMEONE will want to sell offsets-if not ag, others
are looking to cut them out. Splitting ag makes
sense from a strategic point of view
Myth: Energy costs, especially in Rural
America, will skyrocket

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Overall, there is no significant increase
nationwide
In some places, electricity costs will actually
go down….
Rural Co-ops have extra allowances and
funding, a free ride not given to other utilities
States will get billions of dollars for
assistance for low or middle income energy
users
Gas prices will go through the roof

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Gasoline prices gradually go up under S.
2191, tracking the CO2 allowance price
(i.e. 10$ a ton CO2= @ 10 cents on a
gallon).
However, some models show increasing
efficiency will reduce gas demand, taking
pressure off
Other factors will have more impact,
MidEast politics, China etc.
If you are not
at the Table
You ARE on
the Menu!