The Clark Group, LLC Not your Father’s Carbon Market: An Update from Agriculture’s Point of View...
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Transcript of The Clark Group, LLC Not your Father’s Carbon Market: An Update from Agriculture’s Point of View...
The Clark Group, LLC
Not your Father’s Carbon Market: An Update from Agriculture’s Point of View
Laura Sands
Regulated Entity
Agriculture Offset Aggregator/Verifier
Soil CarbonSequestration
ProjectsMethane
from Manure Capture
Low CarbonFuel
ProductionReforestation
DirectEmission
Reductions
How would a carbon market work?
What agricultural practices would qualify? No or low till Methane capture or flaring from dairies Reductions in nitrous oxide emissions from
use of precision agriculture or split application of fertilizers
Grassland management or forestry
Overview
Legislation to Watch Politics & Process Measurement Market Potential—A very different
scenario
LEGISLATION TO WATCH
Why Congress is interested in Ag? Ag can play a role in climate reductions
because it can store carbon in soils and biofuels are low carbon solution
Source: Robert Socolow & Stephen Pacala; Scientific American, Sept. 2006
Each “De-carbonizing Wedge” represents 25 billion tons of carbon avoided or reduced.
7 wedges needed to reach stable carbon emissions.
Cap-and-Trade: Is Climate Legislation Coming?
110th Congress: 165 climate change bills, resolutions, amendments introduced by July, 2007*
Some bills -- not all --would allow a role for agricultural sinks, other agricultural emissions reductions
11 major bills in Senate, 10 in House, would/might provide some credit to agriculture for emissions reductions activities
*Pew Center on Global Climate Change, www.pewclimate.org
Key emerging forces House Dingell draft bill—includes some role
for ag President Elect Obama is committed despite
economy (as was Senator McCain) The Supreme Court has opened the door to
regulation of GHGs, which could have an adverse impact on ag. Cap and trade would override court decision.
Lieberman-Warner Bill (Environment Committee) Allows GHG emitters to meet up to 15% of
their required reductions by purchasing agriculture offsets
Provides 5% of emissions allowance for the agriculture industry (through USDA) to establish government program to reward carbon-friendly practices
Tale of two proposals: Cap-and-Trade: What Role for Agriculture?S.2191 – The Lieberman-Warner Climate Security Act
of 2007 Offset projects include ag and forestry sinks Rigorous project plans, incl. procedures to monitor,
quantify and discount ag and forestry offset projects Discount protocols for MMV, leakage, additionality Ensure permanence by mitigating and
compensating for reversals; annual certification Procedures for 3rd party verifiers/verification
Bingaman-Specter Bill (Energy Committee) No agriculture offset market Provides agriculture industry with 5% of
emissions allowances to establish government program to reward carbon-friendly agriculture practices
Contains an economic “safety valve” which caps the price of carbon at $12/MTC02e
Allows companies to pay a government fund rather than offset market or make reductions
Cap-and-Trade: Is Climate Legislation Coming?
House Energy and Commerce Committee, led by Chairman John D. Dingell, introduced the 1st white paper on Climate Change October 3, 2007, “…as we move towards development and eventual passage of comprehensive climate legislation.”
Conclusions: “The US should reduce GHG emissions 60-80% by 2050.”
“The central component of this program should be a cap-and-trade program.”
Cap-and-Trade: Is Climate Legislation Coming?
Dingell/Boucher White Paper: “The agricultural sector’s direct emissions
generally should not be included in the cap-and-trade program because of difficulties monitoring emissions and large number of sources with low emissions.”
“This sector may present opportunities for emission reductions that would be measurable and might then provide offset or credit opportunities.”
CLIMATE POLITICS
CHANGING
Major confluence of events Democratic Congress Business is supportive Agriculture sees opportunity for major
revenue stream Court decision is key
“USCAP urges policy makers to enact a policy framework for mandatory reductions of GHG emissions from major emitting sectors . . .
The cornerstone of this approach would be a cap-and-trade program.”
www.us-cap.org/
Cap-and-Trade: Is Climate Legislation Coming?
Relevant US-CAP Principles: Congress should immediately enact cap-
and-trade legislation to reduce emissions 60-80% below current levels by 2050
Capped entities should be permitted to meet part of obligations through purchase of verified emissions offsets from a range of domestic sinks and emissions sources
What do (or should) we want? Ag should argue for unlimited agricultural
offsets. This would bring down the cost of compliance—support from utilities
Generate potential for billions of revenue for ag-based GHG reductions
Combination of allowance and offset may be best option—especially for early adopter protections
Stabenow amendment Called for 1 billion ton carbon limit—higher
than Lieberman Warner Had support of coalition of ag groups and
utilities Supported by Lieberman and Warner Bipartisan co-sponsorship Framework for moving forward Workable and verifiable offsets
The science of sequestration
Kansas State University Colorado State University
Iowa State University Michigan State University
Montana State University University of Nebraska
Ohio State University Purdue University
Texas A&M University Pacific NW National Labs
Consortium for Agricultural Soils Mitigation of Greenhouse Gases
“Duke Standard” Measurement GuideAuthors/Advisory Committee from:
Texas A&M UniversityColorado State University
University of New HampshireInstitute for Lifecycle
Environmental AssessmentRice University
Holland & Hart LLPEnvironmental Resources Trust
Princeton UniversityKansas State University
Stanford UniversityBrown UniversityDuke University
What’s different this time around?
We will have a market—
A real market is not business as usual Carbon per acre prices of
$1.50/acre
No incentives to buy from ag
Protocols not transparent
No significant money for aggregators, price is low
Carbon prices that could generate between $15-$25 an acre—for practices
Ag is best low-cost solution for rapid reductions
Publicly traded commodity
Potential for ag groups to aggregate and make $
MARKET POTENTIAL
Illustrative Ranking of Carbon as a Crop in U.S. Per Proposed GHG Limits in Senate Bill 280
(Lieberman-McCain) 1/12/07
0
5
10
15
20
25
Pro
duct
ion
Val
ue (
$B)
[Crop Source: USDA - National Agricultural Statistics Service – US Crop Rankings - 1997 Production Year Ranking Based on Value of Production]
Carbon at $10/MT COCarbon at $10/MT CO22e, e,
Estimates for a mandatory carbon market Mandatory carbon market price
estimate = $10-20/MMTC.
To get a more realistic picture of potential market value, let’s assume $15 MMTC
Will any of this be easy? No. Major opponents are energy industry Some utilities Competing policy ideas which would exclude
agriculture Some pressure on the left which would also
exclude ag
A little information is not a good thing Coal and railroad alliance has amassed a $30 billion
war chest Junk studies (CRA, Searchinger) Serious pushback from oil interests who want a
carbon tax (keeps them on top); or safety valve Alignment against ag offsets continues on the left SOMEONE will want to sell offsets-if not ag, others
are looking to cut them out. Splitting ag makes sense from a strategic point of view
Myth: Energy costs, especially in Rural America, will skyrocket Overall, there is no significant increase
nationwide In some places, electricity costs will actually
go down…. Rural Co-ops have extra allowances and
funding, a free ride not given to other utilities States will get billions of dollars for
assistance for low or middle income energy users
Gas prices will go through the roof Gasoline prices gradually go up under S.
2191, tracking the CO2 allowance price (i.e. 10$ a ton CO2= @ 10 cents on a gallon).
However, some models show increasing efficiency will reduce gas demand, taking pressure off
Other factors will have more impact, MidEast politics, China etc.
If you are not at the Table
You ARE on the Menu!