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Carbon offsets as revenue stream for farmers

A “21st century crop” is beginning to hold the attention of landowners across the United States — carbon offsets. No longer on the periphery of hazy speculation, carbon offsets are attracting mounting interest through financial incentives and revenue streams for farmers.

The offsets (also called carbon credits) offer a path for ag producers to take advantage of the current environmental surge aimed at reducing global warming. By following particular agricultural practices, individual farmers are credited with carbon offsets, which they can then sell for profit.

In short, ag producers can financially benefit by participating in carbon sequestration (process of removing carbon from the atmosphere to reduce climate change).

The carbon offsets credited to farmers are then sold on the Chicago Climate Exchange (CCX), a legally binding market established in 2003. CCX is the only carbon trading market in the United States (Europe currently has three others.)

Companies, governments, and businesses then purchase the offsets to compensate for their own carbon dioxide emissions and uses. Essentially, they buy carbon offsets from agriculture as a legal atonement for their own pollution.

Dale Enerson, director of the National Farmers Union (NFU) Carbon Credit Program, speaking at a recent webinar hosted by Midwest Ag Energy Network, detailed various carbon programs available to ag producers. “We like to think of this as a new crop … We think we are essentially marketing environmental services, including sequestering carbon with the idea of agricultural offsets.”

According to Enerson, there are five different agricultural activities that farmers can utilize to gain carbon offsets:

1. No-till cropping

2. Conversion of cropland to grasses

3. Enhanced range management (rotational grazing)

4. Afforestation (planting trees on unforested land)

5. Methane capture

No-till cropping has garnered the most interest as a carbon sequestration method. Enerson noted that only 5 percent to 15 percent of U.S. cropland is in continuous no-till. “There are a lot of farmers who will no-till for a year or two, and then conventionally put in other kinds of crops.”

As soil is continuously tilled, the carbon content is consistently reduced. No-till attempts to reverse the process, capturing carbon rather than releasing it into the atmosphere.

Different regions of the United States have contrasting versions of no-till. “The whole idea is that we are growing this year’s crop seeded into last year’s crop residue. We’ve got residue on the surface protecting the soil, and that surface residue is going to slowly break down into organic matter and carbon storage potential.”

As a practical matter, there are only parts of the United States where no-till soil offsets can be marketed. “Essentially east of the Rockies — we can market no-till offsets, at different sequestration rates.”

What is the future potential for carbon credits in relation to agriculture?

“The low prices in the early years — there wasn’t a lot of incentive. The price of carbon offsets, in the last six months coming up to the $6 range, certainly has caused a lot of interest and enrollment in the various offset programs. And the volume of trading is going to reflect the whole thing,” says Enerson.

Producers can take their offsets to market through carbon credit aggregation programs, such as the NFU. At the NFU Web site,, producers can utilize a payment calculator tool to estimate offset potential. First, the tool allows a producer to determine if a given county and state are eligible. Second, it translates acreage into potential profit at current prices. “It provides a tool and puts a dollar value on the offsets.”

Enerson says the NFU also offers Internet-based enrollment. “We do have producers who are enrolling their acres by pointing and clicking, and then providing the certification of the acres involved. It then leads to our digital contract. A farmer prints it out, sends it in, and we follow up with enrollment … and go through the process of verification.”

At this point, all aggregators allow the producer to benefit if the offset prices continue to increase — the price is not locked in.

What is the cost of enrolling for producers?

“The cost to the producer at this point, in terms of enrolling in programs of national aggregators like ourselves, has no upfront fees. We go through the process of putting those credits together in large pools. The verification costs could vary … in the neighborhood of 10 cents per acre for some of the large acreages of no-till and grass offsets.”

The aggregator pays the upfront costs. When the pool of credits is sold, the entire pool is charged the verification fee, as well as a brokerage fee, “typically in the range of about 10 percent.”

How is verification determined?

Currently, there is no soil-testing protocol, and debate continues over the verification process. Enerson states that testing individual tracts of land would simply not be cost-effective for farmers. The CCX has adopted general protocols by looking at soil science from across a variety of land resource regions — and established conservative sequestration rates.

“There is no individual soil testing protocol. That is one of the real questions as we move forward. There are people who are demanding, ‘To prove your soil sequestration, you’re going to have to go out and test this.’”

Several states are devising soil testing methods through the use of third party verifiers, with the possible participation of county soil specialists, conservation officials, and consulting firms. However, all third party verifiers would have to be approved by the CCX, and meet financial bonding requirements and expertise stipulations.

The carbon credit market remains an infant industry, and farmers are taking note of the potential boon.

“Many states have lots of different kinds of offset projects. I guess realistically, even if we could just achieve enough income for farmers to pay their real estate taxes, in their minds that would be a pretty big impact to rural economies,” says Enerson.

“If you own or rent an acre of land, there are lots of different kinds of possible revenue streams. I refer to that as a multi-layered cake. I think at this point, we in agriculture have to look at the whole idea of carbon credits, or carbon offset income, as a pretty thin layer of frosting on the cake.”

Exactly what role agriculture will play in the greenhouse gas emission debate remains to be seen. And whether agriculture can be regarded as a bridge to climate stabilization is a question sure to be tossed about for quite some time. But ag producers, if genuine profits can be derived, will be quick to anoint carbon offsets as a “21st century crop.”

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