Carbon credit market pays for practices landowners may already be using

News
Mar 13, 2009
by WLJ
Carbon credit market pays for practices landowners may already be using

For a landowner looking to turn a quick profit, the carbon credit market is not the best option, but it can offer supplementary income for conservation practices that are part of a long-term management strategy.

“This isn’t a get-rich-quick scheme,” said Gary Wyatt, an extension educator with the University of Minnesota. But it can be a nice payment for practices that meet a producer’s short-term and long-term goals.

“CRP [Conservation Reserve Program] (ground) can qualify for carbon credits,” Wyatt said Feb. 24 at a carbon credit workshop in Hutchinson, MN. Besides hunting leases, it’s one of the only ways to earn an additional payment on that land.Landowners can earn credits for sequestering carbon through conservation farming, including no-till and strip-till practices, grass plantings, anaerobic methane digesters, tree plantings and sustainablymanaged forests; however, the credits—equivalent to one metric ton of carbon— earned for each method differ considerably.

Forestry offsets range from 1 metric ton to 3 metric tons per acre; conservation farming offsets range from 0.2 metric ton to 0.6 metric ton per acre, depending on location; grassland offsets average 1 metric ton per acre, and methane digester offsets are 18.5 metric tons per year for every ton of methane captured.

If a landowner decides to pursue one of these options, it “should be a practice that’s complimentary to your land management goals,” said John Ignosh, extension specialist at Virginia Tech, in an interview with DTN. “There’s a lot of volatility in the carbon market right now (and I wouldn’t) do something exclusively for the revenue from carbon credits.”

Another thing to keep in mind is that this is a voluntary program and “there are still many unknowns out there,” Ignosh said. The Chicago Climate Exchange

(CCX) launched trading in 2003 under a four-year pilot program that has since been extended through 2010. Any new national policies developed regarding greenhouse gases could change the nature of this market.

CCX requires individual landowners to work through an aggregator if a project sequesters less than 10,000 metric tons of carbon equivalent per year. The aggregator “pools credits from multiple landowners into a marketable package and trades those credits on behalf of the landowner, allowing (CCX) members to purchase large quantities of credits with low transaction costs,” according to a Landowner’s Guide to Carbon Sequestration Credits, a joint publication of the Center for Integrated Natural Resource and Agricultural Management and the Commonwealth Project.

CCX has about 90 aggregators on its member list (available at www.chicago climatex.com), and landowners should take their time in deciding which one to use because contract details will vary. Find out what types of offsets they traditionally work with, Ignosh said. Ask after the payment schedule and the aggregator and verification fee. “Get a few estimates,” he said. “Call a few different aggregators and call people they’ve worked with, if that’s possible, and see if they’re satisfied.” Many aggregators will post sample contracts on their Web sites. “That’s a good opportunity to look at the nuts and bolts of each one” to see how they pay and the penalties for a broken contract.

The value of a carbon credit changes daily, depending on the market. Contracts started trading in 2003 at about $1 per metric ton, reached a high around $7 per metric ton in mid-2008, and are currently trading around the $2 per metric ton mark. The specific value for a given contract is determined when the aggregator sells its shares.

For example, 350 acres of no-tilled ground in Sioux County, IA, with offsets figured at 0.6 metric ton per acre would sequester 60 metric tons per year. If the price per ton was $2.30, the gross annual payment would amount to $138. Figuring in a 10 percent aggregator commission and the CCX fee of 20 cents per ton, the net payment comes in at $112.20. But 20 percent of that goes into a reserve fund until the end of the contract. That makes the annual payment $89.76.

The total income on a fiveyear contract, including reserve fund, is $561. The North Dakota Farmer’s Union has a payment calculator available at http:// carboncredit.ndfu.org/ to help estimate the revenue a particular contract could generate.

Virginia Tech also has a payment calculator worksheet available for download at www.ext.vt.edu/. Though the CCX is a voluntary market, contracts are legally binding once finalized within the exchange, so it’s important to understand the contract and the commitment involved before signing on the dotted line. Should landowners fail to complete the terms of a contract, they could have to repay any revenue received along with interest and penalties.

“These are legally binding contracts,” Ignosh said. “Exercise due diligence, do your homework and make sure that this is something you want to be wedded to for the duration of the contract.”

Contract length varies from five years for soil conservation practices to 15 years for forestry. Producers must continue the practice or practices they used to earn the carbon credits throughout the life of the contract or face potentially serious penalties.

“Don’t take it lightly— consider all your options, thoroughly read any contract and check out all of your options,” he said.

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