COVER CROP CREDITCLIMATE SOLUTIONS LIVING LAB

SPRING 2020

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The Team

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Master in Design Engineering candidate

J.D. Candidate M.P.H. Candidate in Environmental

Health

Master in Public Policy candidate

Lily CohenNupur Gurjar Jessica SchiffJack Schnettler

J.D. Candidate S.M. Candidate in Environmental

Health

Scott Sanderson

Samantha Tracy

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https://www.epa.gov/ghgemissions/inventory-us-greenhouse-gas-emissions-and-sinkandhttps://www.epa.gov/sites/production/files/2019-04/gases-by-n2o-2019-caption.jpgandv

N2O emissions are

6%of total US GHG

(CO2e).

79% of N2O emissions come

from agriculture.

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Field Visit

KEY TAKEAWAYS

● Suitability of cover crop cultivation

● Concerned about environmental impact

● Innovative

The team in conversation with Art Meinholz, a farmer at Wisconsin. (Feb 2020)

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Two challenges:

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Strained Farm Economy

Agriculture's Climate Impact

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Goals:

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Generate Revenue for

Farmers

Reduce Agricultural GHG

Emissions

Create a GHG Offset

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PLANTING & FERTILIZER APPLICATION

April May June July Aug Sept Oct Nov

HARVEST

OPPORTUNITY

Icon source: Google Images

CROP GROWTH

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Opportunity #1: Farmers Want to Plant Cover Crops

Build Soil Health

Protect FieldsPrevent Erosion

Suppress Weeds

Cover crops are plants cultivated outside of the prime growing season in order to:

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Cover crops also:

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Create Environmental

Co-benefits

Reduce Agricultural GHG Emissions

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. . . but few farmers plant cover crops.

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Why not?

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Financial Strain

Crop Insurance

Limited Funding

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Financial Strain

Thin Margins Variable PricesCapital

Requirements

Limited Liquidity

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Large Potential Losses

Correlated Risk

Farmers Need Insurance

Market-rate Insurance Would Be Expensive

No Private Insurance

Crop Insurance

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Crop Insurance

62% 38%

How many acres are insured?

Who pays premiums?

86%

Federal Crop Insurance Program:

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Crop Insurance

Terminate Cover Crop

. . . AND

Insure Cover Crop

Insure Cash Crop

OR

Cover Crop Rules:

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Risk & InsuranceLimited Funding

Environmental Quality Incentives Program ("EQIP")

Conservation Stewardship Program ("CSP")

Farm Bill Conservation Programs:

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Risk & Insurance

. . . but payments can be modest . . .

Limited Funding $5.96$6.01CSP

WISCONSIN IOWA

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Risk & Insurance

. . . and funding fails to meet farmers' demand.

Limited Funding

45%

EQIP

93,778 42,887

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Opportunity #2: Investors Want Emissions Offsets

FundingReduced GHG

EmissionsEnvironmental

Co-Benefits

Offsets compensate for GHG emissions in one place by reducing GHG emissions elsewhere:

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The SolutionCOVER CROP CREDIT

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Farmer Wins Investor Wins

$18/acrefor cover crop investment

Year 1 & 2

$8-9per ton CO2e

And

1

Slide 21

1 Important to note that $18/acre is only in the first two yearsJack Schnettler, 4/21/2020

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Farmer Wins Investor Wins

Larger Profits Healthy Soils

Reduced Erosion

Emissions Offset

Co-Benefits

Improved Health

And

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PROGRAM STRUCTURE

Farmer

MonitorInvestor

Plants cover crops for 5 years

Submits data

Determines emissions

Pays Farmer and Monitor

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5 year payment plan

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• Removes unnecessary transactional costs

• Decreases price of offset

• Allows for focus on emissions reductions

• Common practice for large entities such as Microsoft to increase efficiency

Expensive

Inaccurate

Cumbersome

Burdens Farmers

No Intermediary

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Project FinancingModel Farm: 1,000 acres with a corn and soy rotation

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~$45,000

Guaranteed Payments to the Farmer (~85%)

Administrative and Contingency Costs (~10%)

Marketing and Outreach (~5%)

Cost of Monitoring (~1%)

5 Years of Cover Cropping

4,700 - 5,200 Emission Credits (Metric Tons of CO2e)

$8 - $9 per Metric Ton CO2e

~300 Kilograms avoided N Runoff

+$13,000 NPV for the Farmers

BUSINESS PLAN & ECONOMICS

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Financial Analysis (Cover Crops w/o CCC)

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Costs$51/acre

- Seed - Planting - Termination

Savings (after 5 years)15-20% fertilizer savings

3-5% yield increase

Weed control

Erosion repair

Farmer's Financial Analysis

Year 1 2 3 4 5

Costs -$47,662 -$46,829 -$44,558 -$45,362 -$44,715

Savings + Yield

Impact$18,388 $31,005 $43,597 $47,949 $55,093

Annual Return

-$29,275 -$15,824 -$970 $2,588 $10,378

Net Return -$33,103

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Financial Analysis (Cover Crops with CCC)

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Costs$51/acre

- Seed - Planting - Termination

Savings (after 5 years)15-20% fertilizer savings

3-5% yield increase

Weed control

Erosion repair

Farmer's Financial Analysis

Year 1 2 3 4 5

Costs -$47,662 -$46,829 -$44,558 -$45,362 -$44,715

Savings + Yield

Impact$18,388 $31,005 $43,597 $47,949 $55,093

CCC Payments

$18,427 $18,427 $9,214 $0 $0

Annual Return

-$10,847 $2,603 $8,243 $2,588 $10,378

Net Return $12,965

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Financial Analysis – Investor’s Perspective

Cost of the Offset ($/Metric Ton CO2e)

Baseline Fertilizer Usage (lb/acre)Total Emission Credits (Metric Ton

CO2e) 5% 7%

195 lb 5,239 $ (8.72) $ (8.67)

175lb 4,949 $ (9.23) $ (9.18)

155lb 4,699 $ (9.75) $ (9.67)

$7.50 $9.00

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Why Use the De-Nitrification De-Composition (DNDC) Model?

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Cost Effective

Accurate

Manageable

Decreases Burden

MODELING &SIMULATION

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Effective Offset Quantification and Verification

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• Location • Soil Health• Crops• Current management

practices• Conservation

practices• Fertilization

application rates• Tillage

● GHG Emissions (CO2, N2O, CH4)

● Nitrogen Runoff● Soil Carbon● Crop Yield ● Estimates of excess

applied fertilizer

Farmers Contributions Analytical Results

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Model Simulation

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Nitrous Oxide Emissions Over 5 Years

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26% Reduction in N2O Emissions after 5 years

Cover Crop Baseline

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Total Emissions Reductions Over 5 Years

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Total Reduction of over 5 Tons CO2

Eq per Acre after 5 years

Baseline Cover Crop

For 1,000 Acre Farm: Over 5,000 tons CO2 Eq

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5,000 Tons CO2Eq = Taking 1,100 Cars off the road for 1 year

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Sources of Emission Reductions

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● 1.04 metric tons CO2e offset per acre annually

● Literature says… 0.22-3.0 metric tons CO2e per acre

Nitrogen 19%

Avoided Fertilizer Production 1%

Carbon80%

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HEALTH IMPACTS ASSESSMENT

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3 Main Pathways 3 Geographic Scales

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Pathway Mechanism

Impact Intervention

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Results

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Reducing N fertilizer by 70lbs per acre can save an

estimated $1,011,555 to $3,088,005 over a lifetime on

a 1,000 acre farm.

HEALTH IMPACTS ASSESSMENT

https://commons.wikimedia.org/wiki/File:Sustainable_Development_Goals.jpg

UN Sustainability Development Goals

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Farmers Earn$18.00per acre

Year 1 & 2

Investors Pay$8.00per ton

Promoting agricultural sustainability

Creating an affordable carbon offset

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Acknowledgements

● Molly Jahn, Jahn Research Group

● Bill Omeichin, Jahn Research Group

● Taryn Otto, Jahn Research Group

● Deanna Ranum, Premier Insurance Solutions, LLC

● Bill Salas, Dagan

● Jia Deng, DNDC Modeling

● Dan Truttman, The Truttman Dairy, Wisconsin

● Art and Lori Meinholz, Meinholz Farms, Wisonsin

● Troy Opsal, The Opsal Farm, Wisconsin

● Dorn Cox, Wolfe’s Neck Center

● Caroline Hamblen, Taliesin

● Gary Zimmer, Midwestern Bioag

● Dan Nocera, Dept. of Chemistry and Chemical Biology, Harvard

University

Climate Solutions Living Lab

● Prof. Wendy Jacobs, Clinical Professor and Director of

the Emmett Environmental Law and Policy Clinic

● Debra Stump, Fellow, Climate Solutions Living Lab

● Rebecca Stern● Dakota McCoy ● Drew Michanowicz● Jacqueline Calahong

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CSLL Team 2