Agriculture’s Role in Climate Agriculture’s Role in Climate Change MitigationChange Mitigation

July 18, 2007July 18, 2007 (revised) (revised)

Daniel A. Lashof, Ph.D.Daniel A. Lashof, Ph.D.Science Director Science Director Climate CenterClimate Center

Natural Resources Defense CouncilNatural Resources Defense Council

IntroductionIntroduction Agricultural solutions are one of many approaches Agricultural solutions are one of many approaches

(“wedges”) needed to reduce emissions of heat-(“wedges”) needed to reduce emissions of heat-trapping gasestrapping gases

Agriculture will play a key role in U.S. and global Agriculture will play a key role in U.S. and global climate solutionsclimate solutions Bioenergy productionBioenergy production Increased soil carbon sequestrationIncreased soil carbon sequestration Wind energyWind energy

A mandatory Greenhouse Gas (GHG) cap will bring A mandatory Greenhouse Gas (GHG) cap will bring long-term monetary value for carbon sequestration long-term monetary value for carbon sequestration

Reliable methods are needed to measure, verify, Reliable methods are needed to measure, verify, and account for the climate benefits of agricultural and account for the climate benefits of agricultural practices practices

Potential for Co-benefits Potential for Co-benefits

NRDC Stabilization WedgesNRDC Stabilization Wedges

-

2

4

6

8

10

12

14

2000 2010 2020 2030 2040 2050

GtC

O2e

Electricity EfficiencyRenewable ElectricityGeologic DisposalVehicle EfficiencyLow Carbon FuelsSmart GrowthOther EfficiencyOther RenewablesNon-CO2 AbatementForest and Soil CarbonOtherTarget

Emission Reduction SharesEmission Reduction SharesSanders-Boxer with Limited Offsets

66 Gt total reduction

Carbon Sequestration

0%

End-use Efficiency

29%

Renewable Energy

20%Nuclear Power

6%

Demand Elasticity and

Fuel Switching

27%

Carbon Offsets18%

Preliminary model results indicate that soil and forest carbon sequestration plus reductions in non-CO2 gases could supply ~20% of cumulative reductions

Carbon Sinks &Non-CO2 Reductions

18%

Criteria for Sound PolicyCriteria for Sound Policy

Does it Does it solvesolve the problem the problem Does it change Does it change investment patternsinvestment patterns Does it provide incentives for Does it provide incentives for

promisingpromising solutions solutions Does it protect Does it protect consumersconsumers, displaced , displaced

workersworkers, and impacted , and impacted communitiescommunities

Mandatory v. Voluntary Mandatory v. Voluntary Markets Markets

Chicago Climate Exchange (CCX) voluntary Chicago Climate Exchange (CCX) voluntary marketmarket Soil carbon creditsSoil carbon credits Methane creditsMethane credits Forestry creditsForestry credits

2007 CCX price of ~$4/ton CO2007 CCX price of ~$4/ton CO22 Equates to ~$2.25/acre for continuous no-tillEquates to ~$2.25/acre for continuous no-till Value under federal mandatory “cap and Value under federal mandatory “cap and

trade” legislation anticipated to be 3-6 times trade” legislation anticipated to be 3-6 times greatergreater

Mandatory cap ensures long term value Mandatory cap ensures long term value

Offsets v. AllocationsOffsets v. Allocations

Verifiable, certified Verifiable, certified GHG reductionsGHG reductions

Sold through market Sold through market to covered sourcesto covered sources

Alternative to Alternative to emissions emissions reductionsreductions

Share of total Share of total allowance valueallowance value

Distributed based Distributed based on climate benefitson climate benefits

Included in the capIncluded in the cap

Offsets for Offsets for sequestrationsequestration

Allocation of Allocation of sequestration sequestration allowancesallowances

Offsets v. AllocationsOffsets v. Allocations

Emissions Cap

Total GHGEmissions

Offsets

Allocation

Sequestration benefits

EmissionsCap

Offsets: Allocation:

Total GHGEmissions

Offsets v. AllocationsOffsets v. AllocationsOffsetsOffsets: :

AdvantagesAdvantages Market-driven valueMarket-driven value Program size not limited by Program size not limited by

allocationallocation

DisadvantagesDisadvantages Potential to weaken emissions Potential to weaken emissions

reduction steps taken reduction steps taken elsewhereelsewhere

Verification challengesVerification challenges Higher transaction costs than Higher transaction costs than

allocationallocation

Allocation:Allocation:AdvantagesAdvantages

Quick launch with direct Quick launch with direct appropriationsappropriations

Use existing USDA Use existing USDA channelschannels

Integrate multiple criteriaIntegrate multiple criteria Lower transaction costsLower transaction costs Greater environmental Greater environmental

benefitsbenefits

DisadvantagesDisadvantages Program size limited by Program size limited by

allocationallocation Not market-drivenNot market-driven

Challenges for Either PolicyChallenges for Either Policy Setting the Baseline/Ensuring Setting the Baseline/Ensuring

Additionality Additionality Who gets benefits?Who gets benefits? Measurement, Monitoring, and Measurement, Monitoring, and

VerificationVerification Accounting for non-permanence Accounting for non-permanence

AdditionalityAdditionality Will the practices adopted provide Will the practices adopted provide

additional sequestration of carbonadditional sequestration of carbon Will incentives provided to farmers Will incentives provided to farmers

promote investment in practices that promote investment in practices that would not have happened without would not have happened without themthem

Additionality Based on Additionality Based on Comparison LandsComparison Lands

0

5

10

15

20

25

30

35

40

1 2 3 4 5 6 7 8 9 10 11 12

Accounting Period

Tons

per

Per

iod

Baseline SequestrationProject SequestrationMitigation

Who Gets Benefits?Who Gets Benefits? Current contributors or only new adopters?Current contributors or only new adopters? Iowa No till- 5.17 million acres (23% of Iowa No till- 5.17 million acres (23% of

total Iowa farmland) in 2004, 2total Iowa farmland) in 2004, 2ndnd in nation in nation Solution: Proportional additionality Solution: Proportional additionality

Measurement and Measurement and MonitoringMonitoring

Carbon sequestration from no till farming Carbon sequestration from no till farming and CRP programs would need to be and CRP programs would need to be monitored and verifiedmonitored and verified

Field soil testing needed for offsets Field soil testing needed for offsets (Green-e Standard)(Green-e Standard)

Practice-based accounting may be Practice-based accounting may be sufficient for allocationsufficient for allocation

Ongoing monitoring needed to ensure Ongoing monitoring needed to ensure replacement of any reversalsreplacement of any reversals

Illustrative Aggregate Value to Illustrative Aggregate Value to FarmersFarmers

Allocation has higher carbon price Allocation has higher carbon price because total emissions are lowerbecause total emissions are lower

ApproacApproachh

CarboCarbon n Price: Price: $/ton$/ton

Tons Tons CarbonCarbon

Aggregate Aggregate valuevalue

AllocationAllocation 2020 300 million 300 million (5% of (5% of allocation)allocation)

$6 billion$6 billion

OffsetOffset 1010 430 million430 million $4.3 billion$4.3 billion

Illustrative Individual Value to Illustrative Individual Value to FarmersFarmers

ApproachApproach Carbon Carbon Price: Price: $/ton$/ton

Qualifying Qualifying acresacres

SequestratSequestration benefition benefit

Total Total Income: Income: price x price x tons –tons –costscosts

AllocationAllocation $20$20(supply (supply of credits of credits restrictedrestricted))

1000, 10% 1000, 10% discount, discount, practice practice basedbased

.9 ton/acre, .9 ton/acre, 900 tons 900 tons total, after total, after discountdiscount

$20 x 900 $20 x 900 = = $18,000$18,000

OffsetOffset $10$10(unlimite(unlimited supply)d supply)

1000, 40% 1000, 40% discount, discount, measurememeasurement basednt based

.6 ton/acre.6 ton/acre600 tons 600 tons totaltotal

$10 x 600 $10 x 600 = = $6,000$6,000

CRP in IowaCRP in IowaConservation Reserve Program- Conservation Reserve Program- 1.9 million acres currently enrolled in 1.9 million acres currently enrolled in

Iowa Iowa 1.15 million could be removed by 1.15 million could be removed by

20092009 CRP lands sequester 1-10 tons of CRP lands sequester 1-10 tons of

CO2 per acre per yearCO2 per acre per year

Individual Farm Income with Individual Farm Income with a Carbon Capa Carbon Cap

Farm Income and GHG Farm Income and GHG PaymentsPayments

Potential for Co-benefitsPotential for Co-benefits Improved air and water qualityImproved air and water quality Reduced soil erosion and improved Reduced soil erosion and improved

soil fertility and productivitysoil fertility and productivity Improved wildlife habitatImproved wildlife habitat

ConclusionsConclusions Farmers will benefit from mandatory capsFarmers will benefit from mandatory caps Tighter caps mean higher carbon prices and Tighter caps mean higher carbon prices and

higher net incomehigher net income Allowance allocation may offer advantages Allowance allocation may offer advantages

over offsets approachover offsets approach Quicker startQuicker start Lower transaction costsLower transaction costs Higher incomeHigher income

Continued dialogue key to win-win solutionsContinued dialogue key to win-win solutions