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Climate change — Mid-South business

During their August recess, members of the Senate toured their home states, facing heated questions about pending health care reforms. At the same time, back in Washington, D.C., many of their staff members were busy crafting climate legislation. And just like health care reform, it appears there are plenty of Americans willing to wade into the climate fray.

Even without cap and trade legislation, however, the concept of sequestering carbon in forests and crops has already made it to the Mid-South. GreenTrees, based in Virginia, has expanded sign-ups in the region over the last several years and expects even more acres in the coming months.

GreenTrees is keeping both a keen eye on what Congress is proposing in the way of climate legislation and an ear towards what their Mid-South customer base is saying about it.

In late August, representatives of the company, Page Gravely, senior director for landowner enrollment and program marketing, and Chandler Van Voorhis, partner and corporate development officer, spoke with Delta Farm Press about the progress and potential of sequestration in the Mid-South, problems — both real and perceived — with the legislation, and the possibility of cap and trade having to wait until 2010. Among their comments:

Quick sketch of what your business is?

Van Voorhis: “Basically, GreenTrees is a forest carbon origination program that marries private capital with private landowners. The intention is to deliver conservation forests that all parties are happy with.

“From our standpoint, Duke Energy is our lead investor. They obviously have a high concern about how they’ll manage their carbon footprint, like any utility. For them, investing in the origination of forest carbon offsets, or credits — or however you want to refer to them — is something they’ve taken a very proactive stance in doing.

“Our approach, from the land side, is to put together a planting practice that (produces) a beautiful hardwood forest at the end of the day and, along the way, create multiple points of revenue for the landowner. The (resulting) forest is something the conservationists will be proud of, the landowner will be proud of and that Duke will be proud of.

“We continue year in and out to put capital to work and work with private landowners that look to take lands that frequently flood, or are of marginal value in terms of crop yield. Instead, of having one income (on such marginal land), it’ll have multiple layers of income from the planted forest.”

Can you bring us up to speed on the acreage signed up? What are you expecting in the next year or two?

Gravely: “2008 was our inaugural year and we enrolled approximately 2,500 acres. This year’s enrollment will be wrapped up in the next 30 to 45 days and we expect to get at least the same amount, potentially double it.

“Compared to last year, this year’s sign-ups are highlighted by much larger tracts of land. In 2008, we averaged about 135 acres per tract. This year, the average is about 350 acres. So landowners are putting sizable chunks in the program. Most notable, the largest to date is a 1,200-acre tract around Tallulah, La., in Madison Parish. In Arkansas, we’ve got a tract of about 500 acres in Fort Collins in the western part of the state. Another 450-acre tract is enrolled near Stuttgart.

“Regarding next year’s expansion, a lot depends on what compliance legislation is. Clearly the GreenTrees model — such as the 70-year term that defines carbon permanence — will be directly impacted by how ‘permanence’ is defined in pending (cap and trade) legislation. That said, we anticipate expanding both our personnel in the Mid-South and achieving a significant growth rate in enrollment.”

What about the climate debate in the last session of Congress? Pros and cons from your perspective?

Gravely: “As you read what the climate bill is trying to achieve in terms of scale, the landowner is the key participant. This fusion of energy and agricultural markets, from our perspective, at the end of the day it’s a voluntary land-use decision by landowners. How do they choose to use their land? And we’re strong proponents of choices for the landowner.

“Historically, they’ll go where the best economic value — the highest and best use of their acres based on soils and other objectives — (along with) legacy objectives and family estate objectives.

“In order to scale for carbon sequestration projects, economic incentives must be in place. Regulations must be such that there is a beneficial, easy path for the landowners.

“As for the pending legislation, if the landowner is restricted too much it’ll be very difficult to achieve scale. We’re not such a proponent that we’re saying ‘trees are good and agriculture is bad.’ It’s always a choice of the best use.

“Our focus is on a lot of the frequently flooded and marginal land — there’s a lot of it in the Delta that should go back to trees. That’s the area that’s ripe for their legislation to scale great pools of carbon sequestration practices that benefits everyone — but first it has to benefit the landowner.

“We want to see the landowner engage in smart farming and that entails keeping soils in crop production. Where possible, fields could maybe be squared off for efficiency of tractor and diesel use.

“Areas that flood or have marginal soil composition could go into biomass production or reforestation programs that yield better benefits and a diversified income stream coming into the farm.”

On the House climate legislation…

Van Voorhis: “On the policy side, you have to remember that most of the folks involved in the debate — or writing it — probably 95 percent writing the ag side have probably never been on a farm. From our side, we try to inject what we’re hearing from landowners, what’s practical. A lot of times what’s represented on the Hill, regardless of which side of the aisle, comes from an institutional land bias, not producer/landowner.

“We try to inject a unique perspective and make sure what is written has an equitable reach across all types of landowners.

“That said, specifically, we saw a lot of wrangling at the last minute on the agriculture titles. At one point, the environmental groups pushed for EPA to regulate the offset market. We fought that tooth and nail and felt that was a bad use of their infrastructure and knowledge base; that USDA had better infrastructure and knowledge on this, which won out at the end of the day.

“The carve-outs that (House Agriculture Committee chairman Collin) Peterson had done over what (House Energy and Commerce Chairman Henry) Waxman was proposing were positive for agriculture and forestry.

“Among the remaining issues is the fact that so much of the volume is being given away to the international market. Obviously, we want to see more of that balance moving to the U.S. domestic market. Of the 2 billion tons that could come in annually for offsets, the House bill allows 1 billion to come from the international market and 1 billion from the domestic market.”

On other outstanding issues…

Van Voorhis: “In the weeds, there are rules on how long the rules of engagement will be. California’s CAR (Climate Action Registry) is pushing 100-year (terms) as the minimal threshold entry into the market. There’s a big push for (federal rules on carbon programs to be) 100 years. We fundamentally believe that’s wrong.

“At the same time, EPA believes there will be 18 million acres that (will accept those terms). We dispute that. We believe the longer the (terms) the fewer acres will go into such programs.

On the Hill, we’ve been pushing to create three levels of offsets: a five-year level, a 20-year or 30-year level, as well as the 100 years. Our thought is very few people will pick 100 years and you’ll see more opting for something like Wetland Reserve Program’s 30-year instrument.

“I told someone on the Hill, we need ‘to create multiple entry points that a landowner may participate in. Then, let the market decide the price of each instrument and let the landowner choose what level he wants to participate at.’”

Reception lately for that message? Any shift?

Van Voorhis: Concerns “for the legislation have moved decidedly into the ag/forestry side now that it’s in the Senate. That’s because of the composition of the Senate.

“I expect that the Senate bill will be friendlier to agriculture/forestry than the House bill. And I expect that in the conference committee — with Peterson having a large representation on the House side — things will be worked over (to agriculture’s benefit) even more.

“Ag and forestry is on the right path. But the devil is always in the details and when you’ve got a 1,400- or 1,500-page document — and something that’s more interlaced than even the farm bill in terms of how each section refers to the other — it’s slow, challenging and arduous.”

I think what you’re offering farmers and landowners is fantastic. … But should it be decoupled from climate change? It seems that’s a sticking point for the types of programs you guys are involved with that you don’t need.

Van Voorhis: “When you look at the totality of the climate issue on a global basis, China emits roughly 25 percent of the world’s emissions, now. They’ve surpassed the U.S., which is at 24 percent. Deforestation accounts for another 20 percent in the world.

“When you couple all three of those, that’s where the game is. The game is in forestry — how to deal with existing stands of worldwide forests — and how the U.S. and China deal with it. Everything else, in my opinion, is ancillary to those three. That isn’t to say Europe isn’t important — but it just isn’t as big an issue when” measured against the Big Three.

“The big piece to solve this issue is still largely off the table. There’s no mechanism for dealing with deforestation on a formal basis, although they’re trying. China isn’t at the table. And we’re not at the table, other than what we’re considering right now.

“So why cap and trade? What does it deliver? Historically, when this nation put cap and trade in the 1990 Clean Air Act around sulfur dioxide and combined to the power sector, it reduced the acid rain and sulfur dioxide in five years by 70 percent. So, if done right, this can rapidly reduce emissions.

“Carbon is a bit of a different animal. That’s because it isn’t just a power sector (issue) but is everything. That’s where this cap and trade bill has gotten off track. It’s become very top heavy and prescriptive. That’s a concern that’s beginning to get out into the marketplace.”

On achieving scale…

Van Voorhis: “What we see as a way of dealing with the climate change if it’s as acute as everyone says is, we like to say, ‘if science is right, scale is everything.’ How do you achieve scale?

“Well, everything on the offset side starts with the landowner. Everything has to be designed toward ‘how do I get massive participation?’

“That becomes, ‘the landowner can participate on the offset side, but he can also work on the renewable energy side. That’s whether growing corn, growing plantations for woodchips for biomass.’

“How do we level that choice? One of the things I’ve pounded on in D.C. is the rules are so easy on the biomass side and so difficult on the offset side. Like water, the landowner will go where there’s the least resistance. We need a balance of both.

“We see a possibility that because this bill has become so top-heavy that renewable energy may be pulled out. That would become a separate component with a push towards a renewable electricity standard. That would create a national standard — say, by 2012, 6 percent of the grid must be made from renewable energy. By 2020, 20 percent needs to be there.

“Cap and trade legislation would then be left to next year.

“That approach would favor the biomass side, which the Delta would benefit from. Anything you stick in the ground there will grow — whether willow, cottonwood or switchgrass and corn. There’s a lot that could happen.

“But in the end, the renewable energy side may be pushed first. Cap and trade would then follow next year.”

The first thing growers say to me is: “We have to go first? We’re going to trust China to come to the table? We’re already being screwed on trade in so many different ways and we’re going to implement this huge thing and trust they’ll follow along?”

Van Voorhis: “I’ve heard that. I think that goes back to the fear of NAFTA and that sits in the back of people’s minds when they say, ‘If we bind ourselves here, we’ll just be sending jobs and production halfway around the world.’”

What about those espousing the alarmist climate scenario? You know, Manhattan will be underwater in 20 years, or whatever. If such dire predictions are true, cap and trade would only seem to be nibbling at the problem’s edges.

Van Voorhis: “The other way of saying it is, ‘If AL Gore is right, then scale is everything and everything must be built around scale.’

“We’ve worked closely with a lot of the insurance and re-insurance industry. They have some of the best climate analysts in the world looking at this. They take a lot of different risks while re-insuring companies.

“For decades, they’ve been scared about this. It’s no accident that (Sen. Joe) Lieberman has been the co-sponsor of two of the main bills — McCain-Lieberman and Warner-Lieberman. He comes from the insurance side.

“I’ve seen various (predictive) models of what might happen.

“Most environmental problems are going back and repairing what’s happened. Climate change presents a different issue: preparing for the future, whether it’s as bleak as (Gore) claims or it’s as moderate as others claim. But you don’t want to find out too late.

“So how do we do things that make more common sense on a scale basis? From our standpoint, there are a couple of ways. You create the entry points on renewable energy, biomass, and the sequestration side.

“The other thing is the federal government owns a lot of land, a lot of forest. We could provide an example to South America by taking the forest and using it as an insurance reserve in the marketplace — kind of an FDIC. … That would help teach places like Brazil, Indonesia and China how to create a mechanism to solve that 20 percent deforestation issue I spoke on earlier.

“We’ve suggested that on the Hill because it seems a missing infrastructure piece on how this market could be formed. We hope a federal carbon reserve will make it into the final piece of legislation.

“But, you’re right: we must think big. There is a lot of worry that the House bill isn’t bold enough, isn’t aggressive enough.

“The flip side of that is the economy is currently in the toilet. How aggressive do you get when that’s the case? We’re kind of caught between the doom-and-gloom of the financial world and the doom-and-gloom of Mother Nature. What to do? Well, we should default to common sense.”

You mentioned the markets. That’s another thing folks are concerned about with cap and trade. As you said, we’ve just had a financial meltdown, essentially, on Wall Street. Can you assuage the worries about these (cap and trade) markets? How can they be structured so there won’t be fears that they too will be manipulated by Wall Street bankers?

Van Voorhis: “Any market needs some degree of speculation. Those are the people that buy. However, over-speculation leads to problems.

“There are amendments in the Senate looking to deal with how to curtail carbon from becoming the next asset bubble.

“It’s good that they’re thinking and worried about it. It’s probably bad because anytime government tampers with (such), it creates other issues.

“There are no guarantees, though. Carbon is expected to be the largest commodity market in the world in the next couple of years. Already, $128 billion traded hands last year. That was up from $64 billion the year before.

“The market is growing. It’s growing tremendously on the voluntary side in the EU.

“How to deal with speculation? That’s tough. I don’t have a handle on how to solve that.

“Let me give you an example of unintended consequences when D.C. meddles in something. When they created the corn ethanol provisions, D.C. miscalculated the human appetite for corn versus the industrial appetite.

“Meddling in prescriptive behavior is a problem because you don’t know where the bubbles will form. There are some worries that biomass might be the next asset bubble. Or, will farmland prices be an asset bubble since there will be so much pressure: food production, fuel production, carbon, and everything else.

“These are all rational thoughts that need to be dealt with. China is a big vacuum cleaner for commodities. What will that mean to the big picture? China is already here trying to buy huge volumes of wood pellets to power their power plants.

“There’s a lot of anxiety in the marketplace. The only way to get rid of that is to create a balanced regulatory framework.”

Anything we haven’t discussed?

Van Voorhis: “There have been some studies on what demand for offsets will be. A Point Carbon study — the industry leader in such studies — says the potential demand for offsets of all types is roughly between 230 million tons and 550 million tons.

“The question then is how to create supply to meet those tons? That’s a tremendous amount of acreage whether you’re doing no-till agriculture, forestry or some type of grass. That’s got to get into the game by 2012.

“At day’s end, how do we write this thing and bring it back, as (Gravely) says, ‘to the landowner.’ It starts with the landowner. How to provide him choices that make economic sense so we have the opportunity to deal with these issues on a scale basis?”

For more on cap and trade, see

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