Carbon Trading - What Is It & How Does Ag Maximize Its Potential? - Dick Wittman, Farmer/Rancher/Timber Mgr Past President, PNW Direct Seed Assn

Carbon Trading – What Is It &
How Does Ag Maximize Its
Potential?
                                    Presented at
                           Commodity Classic Workshop
                          Ag Coalition on Carbon Trading
                                      2/28/07

  Dick Wittman, Farmer/Rancher/Timber Mgr
  Past President, PNW Direct Seed Assn

My Background...

† Former Ag Lender - FCS
† Partner in diversified family farm business
† Farm management consultant
  „ Farm Family Transitions and Financial Mgmt
† Industry boards/affiliations
  „ Farm Financial Standards Council – Past President
  „ PNW Direct Seed Assn–Founder, Past President
  „ Commodity group and bank boards
  „ Idaho Governors Advisory Committee – Carbon
     Sequestration
  „ Environmental Defense – Ag Advisory Committee –
     Climate change

                    Carbon Trading Overview             2

Focus of Presentation
† How PNDSA got involved in carbon trading
  7 years ago
† How Carbon Trading Value is created
† How Ag is currently marketing carbon
    „ Players making our markets
    „ Trends in value of carbon credits
† Ag Policy framework needed for fair price
  and stable trading environment
    „ Key policy issues needing ag definition
    „ Strategy for building “one-voice” consensus
Handouts & PPT Available: www.wittmanconsulting.com
                       Carbon Trading Overview        3

Quality of Life          Mission
            Business
                                    Strategic Plan                   Vision
            Structure
                                    “How we do it”
 Succession                                                              Long Range
 Planning                           Short-term Goals                     Objectives
In-source                       Financing       Marketing
Out-Source                  Operating Plan-
                                      Plan “What We Do”
                                                              Crop
                               Production Capital Plan Budget Rotation
Value-
Added                Evaluate                        Action Plans
  Strategic                            KRAs                            Diversification
  Alliances
                                                                  Environmental
                Technology                                        Stewardship
                Adoption            Tillage         Growth
 WF Version-Mike Boehlje            System
 Strategic Thinking Model
                                        Carbon Trading Overview                   4

PNDSA Formation
† Organized in 1999
† Key focus – information exchange
  organization – promoting DS adoption
† …coincidently, Kyoto process and
  concerns about global climate
  escalating at same time.

              Carbon Trading Overview   5

Pacific Northwest Direct Seed Association
Partners                                       Collaborators
Chem/Fert/Equip                                                     Commodity
                         Promoting economically viable
Companies                                                           Groups
                         and environmentally sound direct
Environmental
                         seed cropping systems…                     Educational
Groups                                                              Institutions
                                  PNDSA
Public Agencies                                                     STEEP III

                             … through research
Conservation                                                        Policymakers
                             coordination, funding,
Organizations                and information
                             exchange.                              Global Based
Energy                                                              Conservation
Companies                                                           Tillage Groups

                Washington            Idaho                Oregon

                                 Carbon Trading Overview                           6

Key Events that Drove Carbon
Trading Market Development
† Global warming concerns
† Kyoto Talks
  „ promoted caps on emissions
  „ Proposed eligible carbon sequestration sinks and
     potential for offsets
  „ US vs. other countries’ positions – ag vs. forestry
     debate
† US approach – Voluntary, not mandated interest
† Global trading market in “birthing stage”
  „ New players emerging
  „ Lots of questions re: who will the buyers and sellers
     be?

                      Carbon Trading Overview               7

How We Got Into the Fracas
†   Contact from ED –
    „ proposal to consider role as an aggregator
    „ ED proposed role as matchmaker
†   Why they approached us
    „ PNDSA policy supported programs that offered financial
       incentives that encourage adoption of DS (EQIP, CSP,
       PL566)
    „ Science recognized direct seeding sequesters carbon and
       builds Organic Matter
    „ Marketing carbon credits was vehicle for monetizing
       conservation benefits from DS
    „ We had captive position with select target that made for
       ideal aggregator…it was also an “IDEAL PR sell”
    „ ED mission was to “promote market based solutions” –
       didn’t want to aggregate… preferred facilitator role

                        Carbon Trading Overview                  8

Our Learning Process…(2000-02)
† Crash course on Carbon Sequestration
  „ 1st Committee: Dr Cook, Karl Kupers, Wittman
  „ Waded through technical jungle – ERCs, RMUs,
     carbon sinks, saturation, low hanging fruit, etc.
† Networked with Other Experts
     † John Bennett, Saskatchewan Conservation
       Tillage Assn, and member of Canadian
       team at Kyoto
     † Don Reicosky, USDA-ARS, Minnesota,
       internationally recognized carbon expert
† Published informational document for
  membership – FAQs & posted on website

                       Carbon Trading Overview           9

FAQs
† What is carbon sequestration?
† What is the unit that is traded?
  „ Carbon Sequestration Credits
  „ Emission Reduction Units
† How much can be sequestered from
  direct seeding?
† How is sequestration measured?
† Who are potential buyers?
               Carbon Trading Overview   10

FAQs (cont’d)
† What drives value of Offset per T C?
  „ Range $2.50/t US Æ$25-30/T Europe
  „ Kinsella-$29.85Corn; $9.85 Soy; $17.85 Wheat
† What are risks of selling credits?
  „ To buyer… & to seller
† How does risk impact price of ERUs?
† What is duration of proposed sequestration
  agreements?
† What are advantages of leasing vs. selling?

                  Carbon Trading Overview      11

…let’s start with some basics about
Carbon Sequestration

             Carbon Trading Overview   12

What is sequestration?
† Net result of photosynthesis, plant respiration,
  & tillage/residue mgmt/rotation practices
Photosynthesis:
   „   CO2 + nutrients + sunlight + water = O + carbohydrates
Plant respiration:
   „   O + Carbs convert to CO2, water, and energy
Results:
† When photosynthesis > respiration
   „ CO2 removed from atmosphere & stored in plant cells
† …then we add impacts of tillage, residue mgmt,
  rotation diversity

                       Carbon Trading Overview                  13

Where does Ag Fit as carbon sink?
† 4 types of sinks - atmosphere,
  terrestrial biosphere (soil & plants),
  oceans, and subterranean sediments
† Agriculture & forestry sequestration
  activity deals with terrestrial
  sequestration

               Carbon Trading Overview     14

Terrestrial Sequestration
• Converting CO2 into biomass
     –   Increase soil carbon
     –   Rehabilitate range land
     –   Grow trees
     –   Grow microbes
• Cost effective “low hanging
  fruit”

24 October 2006

Economic Cost Comparisons

 • Relative costs of Carbon Sequestration Solutions
      – Geologic              Price

      – Terrestrial
         • Aforestation
         • Agricultural soils
                                                              Geologic

                                                   Forestry

                                      Crop soils

                                                                         Carbon

24 October 2006

Why Direct Seeding/NT Getting Attention
as Global Warming Solution? Benefits
Solution to economic and
   environmental sustainability:
†   Sequesters CO2 Æ.5T/acre/yr
†   Can Ç OM 0.1%/Yr.
†   Improves air & water quality
†   Improves wildlife habitat
†   Lower fossil fuel use
    „   ↓ 3.5gal/acre per USDA
† Increases economic viability
† Solution to global warming
  through emission reductions and
  carbon sequestration Æ 20-25%
  Kyoto goal

Tillage leads to soil erosion (wind, water) & carbon release
   …also causes degradation of air, water and wildlife quality

                                      Å CO2 going into
                                      atmosphere = ↓ OM

Å Habitat is GONE– both above & below ground!

M = Mobile
R. = Research
                MR. GEM
G = Gas
E = Exchange
M = Machine

Invisible effects of invisible forces!
                   Carbon Trading Overview   19

Tillage + Erosion + Unhealthy Rotations Î 50% Loss Soil Organic Matter

Example: Kansas soils had native organic matter 1-4%
             …current levels = 0.5 – 2%

                           Carbon Trading Overview                20

Key Issue to Qualify for Emissions Offsets:
ÆMinimal soil disturbance
ÆRetention of residue on soil surface

Other Impacts of Reduced
     Tillage on CO2 Emissions
‰ Reverse tillage based emissions (3.7 tons of CO2 are released/ton of carbon that
is lost from tillage and erosion).
‰ CO2 emissions lowered by 75% in reduced-tillage farming systems and 93% in
no-till and strip-till systems.
‰ Reduced fuel use (est. 3-5 gal/ac) provides fossil fuel emission reductions
         Æreduce 22.38# CO2 emissions/gal saved
‰ Can raise soil organic matter (SOM) by 0.1%/year. Continuous NT/Direct Seed
could reach equilibrium in 15-20 years.
‰ Minimizes breakdown of humus Æ increases water holding capacity and ability
to sustain soil micro-biological activity
‰ Worldwide, 48 million hectares direct seeding at turn of century
    Æ results in 134
   …estimated    we million tons million
                     need 620    of reduced CO2 per
                                         tonnes     year. (Tebrugge)
                                                to meet    Kyoto .
    Æ NT/DS can solve 1/5 of problem!

                                                                                QoL

Evolution of Carbon Trading
† PNDSA Early Experiences – Leasing
† Other Early Players across globe
  …BEWARE of taking ownership of bragging rights!
  Somebody somewhere has done it before!!!

† Current Aggregators Active in Ag

                    Carbon Trading Overview         23

Early players in Carbon Trading
† Australia/NZ
  „ Major players early on; now almost self-
    sufficient in meeting Kyoto protocol
† Central & South America –
  „ Numerous grants, small projects to promote
    conservation improvement
† Canada/US
  „ GEMCO/IGR - 500,000 tons ’99 (priced at $2-
    6/Ton…growers netted $.37/T)
† Europe
  „ Actively trading emissions credits

                   Carbon Trading Overview        24

PNDSA Strategy - Carbon Trading
† Educate first…negotiate deals later!
† Key Policy Stance: Lease…don’t
  sell…especially until we know what
  we’re doing!
Result: Participated in first global
  carbon lease arrangement for carbon
  credits

              Carbon Trading Overview   25

Why Lease vs. Sale
† Fixed term –
  „ Lease allows seller to put deadline on
    liability for performance
  „ Outright sale involves indefinite time
    frame to deliver performance obligation
† Allows for change in conditions
  „ Lease allows farming practices to change
    if conditions warrant
  „ Permanent sale may bind farm to current
    management practices
                 Carbon Trading Overview      26

Why Lease vs. Sell? (cont’d)
† If measurement shows over time you are
  an emitter, may be forced to buy credits to
  deliver sequestration benefit sold.
† Leasing avoids permanent conservation
  easement that could reduce the future
  value of the land.
† From STEWARDSHIP standpoint, leasing
  creates incentive for emitters to fix the
  problem…vs. selling buyers a permanent
  right to pollute. (Moral high ground!)
                 Carbon Trading Overview    27

Soil Carbon
Sequestration: A
working contract
 A LEASE contract
 between Northwest no-
 till farmers and a
 Louisiana energy
 company, Entergy (4th
 largest energy co in US)

What the PNDSA desired:
† Contract where money actually
  changed hands
  „ Cash up front
  „ Lease arrangement
† Opportunities and incentives for:
  „ Developing future contracts
  „ Stimulating measurement research
† Financial incentives to increase
  adoption of DS cropping systems
               Carbon Trading Overview   29

What Entergy wanted
† Get Kyoto ready before mandate
  comes in 2008
† Long term contract: 10 year
† Low price
† Emission Reduction Credits in
  addition to carbon sequestration
  credits

              Carbon Trading Overview   30

The Process
† ED made initial proposal to PNDSA
† Agreed on Conceptual Model for lease
  arrangement
† ED circulated 1-page offer sheet to
  potential customers desiring emissions
  reductions
† Entergy Co – “…let’s make a deal”
  „ “Looking toward tomorrow”
  „ Building an offset forest
  „ Promoting a stewardship image with
    constituents
                 Carbon Trading Overview   31

Process (cont’d)
† PNDSA developed contract with growers
  „ Definition of DS; requirements and penalties
  „ Eligible acres: DS before 2002; CRP excluded
† Grower contracts completed by November
  2002
† Money transferred to producers through
  PNDSA
† Annual verifications performed by NRCS

                  Carbon Trading Overview          32

Eligibility & Protocols*
#1 - Must be member of PNDSA
* Acres meet definition of direct seeding
  „ Planting and fertilizing with no prior
    tillage to prepare soil
  „ Can be one or two pass
* No burning during lease term
* Pay back feature if tilled before 2012
* If leased acres out of compliance,
   could substitute other acreage
                 Carbon Trading Overview     33

What we negotiated
† 10 yr lease - 3000 tons CO2 credits/year through
  direct seed production practices
  Total of 30,000 tons (1T CO2/3.67 = T C)
† $2.50/ton paid up front => $75,000 total
† Annual verification by local Conservation District
  employees - visual inspection of direct seed
  methodology
† Emission reduction credits from reduced fossil fuel
  usage in DS
  „ 22.38# CO2 reduction/gal diesel saved
† Aggregation fee of 20% paid to PNDSA
† Contract signed May 2002; started aggregating
  credits in September 2002

                    Carbon Trading Overview             34

PNDSA / aggregator contract
with farmers
† 100 acre maximum @.55ton CO2/acre/year of DS
  „ Designed to give more farmers a chance
  „ Create interest in future contracts
  „ Insure actuarially sound
† Total acres to meet contract: 54,500 ac-yrs
† Total acres signed up: 6,240ac…113% of min. regmt
† 1 Acre Example:
6yrs DS x .55T CO2/yr x $2.50/T = $8.25/ac
Grower@$2.00/TÆ$6.60/ac; PNDSA@$.50/TÆ$1.65/ac
Æ Not the money that counts…
† Ten year term
  „ Payback criteria if revert back to tillage during term
     of contract

                      Carbon Trading Overview                35

Working on New Generation
Contract
† Significant expansion in acres –
   „ scoping potential acreage available
   „ Targets: 100-200,000T CO2/yr => 2-400,000ac
† Higher values for sequestration
† Variable compensation based on
  rainfall/rotations
† Growers to receive value for fossil fuel
  reductions + sequestration
† Tougher protocols administration
  „ Scoping other third party verifiers
  „ Compensation for verification

                   Carbon Trading Overview         36

Part II – 3 Basics of Marketing Your
Carbon
† Define & measure what we have to sell
† Assure a fair price
  „ Assess market supply, demand and equilibrium
    price levels
  „ Assure ag access to the market – legislation,
    regulation, protocols, and market exchanges
† Develop a marketing strategy
  „   Inventory saleable product & get “certified”
  „   Identify viable market outlets
  „   Decide on market timing & price objectives
  „   Execute the plan

                    Carbon Trading Overview          37

Two Different Products to Market
† Carbon Sequestration
† Emission Reductions
  „ From tillage reductions
  „ From reductions in fossil fuel reductions

                Carbon Trading Overview         38

Intensive Tillage                         NT/Direct Seed/Zero Till

 Carbon Trade Products Created by Transition to NT/DS:
 ÆNet Carbon Sequestered from reduced tillage =
       0.55 tons CO2 per acre/year
    …doesn’t count benefits to soil, water & habitat quality from
    reduced erosion

 ÆEmissions eliminated from reduction in fossil fuel consumption
 4 gal fuel x 22.38# CO2 ↓/gal saved = 90# Æ .045T CO2/ac/yr
    Total Carbon Emission Offsets = .55 + .05 = .60T

How do we measure this…
† Players active in measurement
  „ CASMGS – 8 Land Grants; K-State (Rice)
    † 2003 Measurement & Monitoring conference
  „ National Soil Tilth Laboratory – Ames, IA
  „ North Central Soil Conservation Research
    Laboratory – Morris, MN (Reicosky)
† Predictive measurement models
  „   COMET (CENTURY) www.cometvr.colostate.edu/
  „   C-Lock (CENTURY) – So Dakota St.
  „   CROP-SYST ARS-Pullman, WA
  „   SEQUESTER – Pendleton, OR
† Other tools: Veris Mapping
                  Carbon Trading Overview        40

Voluntary Reporting Carbon Management Tool                                                 COMET-VR (Beta)

                                Go to | Reset   | State |   County |   Parcel |   Soil |   Rotation |   Tillage |   Submit |   Summary |

Values are valid for 2005 through 2015 assuming that no change in management occurs.

The default values, or your specified values for soil carbon, may be reported in the 1605(b) system. We recommend that you
print this page and save a copy of this report to a file on your computer system. Use the button "Write File" on the Next
page to save this report.

Top of Form

                    CASCADE County, Montana Century's Dynamic Carbon Database COMET-VR Summary:

      Voluntary Reporting                                      Carbon Management Tool COMET-VR
                                         Carbon Storage Report
                                                  Report Year: 2005

                     Parcel Description                                       Parcel Management History

        Parcel Name:         Parcel 1                                  Historic:           irrigation (pre 1970's)

        Parcel Size:         600 Acres                                 70's to             dryland: spring wheat-mechanical
                                                                       90's:               fallow; No Till Tillage

        Location:            CASCADE, Montana
                                                                       Current:            CRP, 100% grass; No Till Tillage

        Soil:                Non-hydric Silt Loam
                                                                       Report
                                                                                           CRP, 100% grass; No Till Tillage
                                                                       Period:

                              Predicted Change in Soil Carbon for the Parcel
                                                 Annual Change for 2005

                                                                                                                           0.15T/Ac
                                                              Change in Carbon                % Uncertainty
                Total Tons Carbon per year:                              25                             8.87
                Total Tons CO2 Equivalent per year:                      91                             8.87

        Values recorded in English units. One ton of carbon is equivalent to 3.664 tons of carbon
        dioxide.

                                                Carbon Trading Overview                                                              42
http://www.cometvr.colostate.edu/

C-Lock Model Results
Accrued CO2-equivalent offsets and credits summed over each 10-year period of the simulation of three
management scenarios, compared to a BAU case of conventional tillage of a corn-wheat-soybean rotation.
Net credits are the sum of credits and offsets.

                1991–2000      2001–2010      2011–2020      2021–2030

Mg CO2 equivalent per hectare
                                                                               TOTAL
                      Crop – Reduced Tillage
Offsets               4.8        2.6        3.9                   2.3
Credits               2.1        0.1       -1.1                   1.1
Net Credits           6.9        2.6        2.8                   3.4          15.7
                      Crop – No Tillage
Offsets               5.5        4.2         6.6                 4.9
Credits               12.8       7.9         4.4                 6.8
Net Credits           18.2      12.1        11.0                11.7           53.1
                      CRP
Offsets               5.5         4.2        6.6                 4.9
Credits              15.5       17.2        12.6                14.2
Net Credits          21.0       21.4        19.2                19.1           80.7

 Source: “C-Lock…” South Dakota School of Mines and Technology, Karen Updegraff et al

Challenges with Modeling
† Diverse micro-climates
  „ Weather – temperature, rainfall
  „ Soil properties
† Diversity of management practices
  „   Rotation
  „   Tillage Practices
  „   Nutrient Management
  „   Historical land use–(requires LT records)
† Getting academics/researchers to form
  consensus
                    Carbon Trading Overview       44

Potential C Sequestration of
                                                      1# C Æ 3.7# CO2
    Management Practices
• No-tillage (direct-seeding): 100 to 700
  lbs C/ac per year over 10-30 years            Å370 - 2,590#/yr
  – BUT, dependent on crop rotation,
    fertilization
• Returning crop residues and roots: Soil
  C gain is proportional to C inputs
  – Perennials > annuals; Wheat > peas >
    summer fallow
• Perennial grasses (CRP): 500 to 1000
  lbs C/ac per year
                                            Å1850 - 3700#/yr

                                            .
                                                                                            .

                                                         CT

                                            Model predictions of soil organic C change under
                                                     various agricultural systems
                                            Annual increases of 250 to 1000 lbs soil C/ac
                                                .

                                                                                                .

At what price should carbon sell?
†   Using “cost accounting” valuing GHG offsets
    „   Kinsella–value of nutrients; price needed to encourage Ç soil quality
        through adoption of NT Æ $75-100/t C
    „   Chuck Rice: N,P,K + H20 in kg humus = $.20
        Æ   Converts to $1100/ac with 1% SOM @0.6% carbon
        Æ   If increase SOM 0.1% Æ C is worth $110 value/acre
    „   Legal Costs/Transition Costs - not cheap; give up flexibility in tillage,
        rotations, burning, etc.
†   Using “supply/demand” approach
    „   Demand = function of:
        †   Voluntary vs. mandated trading market
            „   Minimum price = “bottom fruit” selling now to voluntary buyers
            „   Maximum price = What the fine is to sin!;
        †   Level at which Caps are set (i.e. setting lower increases value of credits)
        †   Costs to reduce emissions (i.e. severity of emission taxes or permits
            imposed (i.e. $.05 Fuel tax/litre equals $20.15/tonne of carbon.)
    „   Supply: depends on who will be eligible to market
        †   What is best buy: emissions reduction? … or sequestration?
        †   Who is an eligible offset? Ag, Forestry, other GHG reduction projects
        †   How do ag vs non-ag offset projects/practices compete (quality, price)?

                               Carbon Trading Overview                              46

$38US

                                     $20US
                             $11US
        $9.50US
                                     $5US

2005-06 Euro vs US dollar
Currency exchange rates:
ÆLow: $1.16
ÆHigh: $1.35

MARKET DATA (Click here for
live data)

CCX Carbon Financial Instruments,
2006 RECAP
Summary of trade

Vinta                            2006
         High    Low     Close                Historic Volume
ge                               Volume
2003     $5.30   $1.50   $4.10      827,500                           1,677,800
2004     $4.90   $1.55   $3.95      825,700                           1,889,800
2005     $4.80   $1.55   $4.05      966,100                           2,310,600
2006     $4.75   $1.60   $4.00   1,326,000                            2,299,800
2007     $5.00   $3.00   $3.75   1,523,600                            1,523,600
2008     $4.65   $3.00   $3.75   1,520,200                            1,520,200
2009     $4.60   $3.10   $3.75   1,590,300                            1,590,300
2010     $4.60   $3.10   $4.00   1,707,000                            1,707,000
                                                                       14,519,100
                                 10,316,40    Price Units: Per metric ton of CO2
Totals
                                         0    Volume Units: metric tons of CO2

  Source: Iowa Farm Bureau website

Where can you sell your carbon?
† Direct Sale Aggregators
  „ Direct Sellers: PNDSA
  „ Aggregate/re-sell: CCX, GEMCO/IGF
† X-Chg Aggregators (a growing list…)
  „   Illinois Conservation and Climate Initiative
  „   Iowa Farm Bureau
  „   National Carbon Offset Coalition
  „   National Farmers Union
  „   Northern Plains Environmental, Inc
  „   Others
† Foreign Markets ???

                    Carbon Trading Overview          49

Contract Protocols - Key Issue for
Offsets to be Validated
† CCX traded contracts
  „ CCX developed protocols working with
    aggregators
  „ Emissions standards: 1605 compliance
  „ Sequestration standards: still “work-in-progress”
† Direct Sale contracts
  „ What ever the buyer & seller agree upon
† Issue: Will existing protocols be recognized
  by state, national, international bodies if:
  „ cap & trade is passed
  „ rules are legislated for what constitutes eligible
    offsets

                    Carbon Trading Overview              50

Common Protocols – NT/DS
† Member of aggregating entity
† Practices comply with DS/NT/ST
  definitions
  „ NRCS 329 standards – Beware of the
    devil in the details (Definition of NT/DS)
† No burning or residue removal
† Substitutability
† 1605(B) – covers emissions side…
  doesn’t address sequestration projects
                 Carbon Trading Overview         51

Protocol – Considerations
† Rate of carbon sequestration
† Volatility – ability to withstand
  environmental disasters (fire, insects,
  disease, floods)
† Permanence
† Leakage
† Additionality
† Predictability
† Conversion to other sink forms
† Net emissions/sequestration balance – CO2
  emitted to generation CO2 seq. project
                Carbon Trading Overview   52

Quality Measurements / Standards
† Gold Standard – branding,
  certification process (Duke University)
† King formula – quality measure
† “Carbon Credited” Brands program -
  maps carbon footprint – Michael
  Kiely, Australia)

               Carbon Trading Overview   53

$$$ at Stake
† Producers – value added revenue source
  „   86mm acres corn
  „   57mm acres wheat
  „   CRP; forests
  „   Grasslands, methane capture, renewable fuels
† Aggregators - service to members/profit
  „ Revenue source 10-20% of offset value
  „ Administrative Cost
† Emitters – looking for offsets to meet caps
  „ Looking for least cost/highest quality
  „ Buying time until can improve efficiency

                   Carbon Trading Overview           54

Illustrative Ranking of Carbon as a Crop in U.S.
                                                    Per Proposed GHG Limits in
                                             Senate Bill 280 (Lieberman-McCain) 1/12/07

                                                                            Carbon at $10/MT CO2e,
                         25
Production Value ($B)

                         20

                         15

                         10

                           5

                           0

                                                                                                                                orn
                                                                                s

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                                            nes

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                                                                                                 pes

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                                                     es

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                                                                                                             eat
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                                   es

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                                                          oat

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                               dat

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                                                                                                       CA
                                    nec

                                                                  fres

                        [Crop Source: USDA - National Agricultural Statistics Service – US Crop                                       55
                        Rankings - 1997 Production Year Ranking Based on Value of Production]

Marketing Question: Sell now…or
wait?
† Issues
  „ Climate change legislation/regulation?
  „ How position farm to maximize value?
  „ How long will game be in town?
† Getting “carbon credited” – Be Ready!
  „ Inventory offsets available to market
  „ Do it yourself? …or Hire experts? (i.e. “Carbon
     Credited” Brands program, mapping carbon footprint –
     Michael Kiely, Australia)
  „ Big Question: will “stamped” projects and
    offsets bring premiums or better market access?
                     Carbon Trading Overview                56

Part III – Defining an Ag Policy Framework
– Underpinning Access to Carbon Market

† Issues where Ag
  needs to weigh in
† Strategies for
  building consensus
Caution: Be sensitive
  to constituents who
  don’t get to play

                Carbon Trading Overview   57

10 Policy Issues – Carbon Trading
† Cap and trade federal legislation
† Limits on Agriculture as eligible
  carbon sink/emissions offset
† U S position on national/international
  protocols limiting emissions
† Eligibility to market emissions
  reductions as well as sequestration
  credits
† Where should baselines be set?
               Carbon Trading Overview   58

Issues (cont’d)
† Financial additionality – eligibility to
  receive compensation from multiple
  parties for same practices
† Research funding for terrestrial
  sequestration
† Fixing value of carbon legislatively
† Establishing state/federal protocols
† Preferred role of USDA in carbon
  trading
                Carbon Trading Overview      59

The “Carbon bus has left…are we on
 the bus, or running to catch up?”
† Megafirms pushing for 10-30%
  emissions reduction next 15 yrs
  (utilities, manufacturing,
  chemicals, financial services,
  environmental groups)
† Buyers coming… Example:
  10 MMT offsets (5 utilities)
  Æ 4mm NT acres for 5 years
† 6 bills in hopper to regulate
  climate, carbon…& counting
ÆCan agriculture say where we
  stand?
                      Carbon Trading Overview   60

Strategy for Resolving Policy
Debates
† Form collaborative effort across all
  commodity and conservation groups
† Formalize networks/communication
  with select environmental groups who
  share common goals with agriculture

              Carbon Trading Overview   61

Threats from inaction & ignorance
† Ag will have no say in policy formulation
† Mandated caps on price of carbon
† Producers will sell carbon credits too cheap
† Existing contracts could lose value due to
  measurement rules
† Ag sector could be penalized for emissions*
† State regulations lock Ag sector out of
  marketing carbon-friendly practices (CA)
† Non-US competitors imposing opinions on
  what we should do
                 Carbon Trading Overview     62

Examples: Daily threats & attitude shifts

“Agriculture sector should be penalized for GHG
   emissions…farmers and livestock breeders that produce
   excess greenhouse gas emissions should be punished for
   their negative impact on the environment.” U K Environment
   Secretary, David Miliband – Oxford Farming Conference, Greenwire, January 4, 2007

“Companies that see climate change coming, recognize it for
   what it is, do the relevant R&D and inculcate a positive
   attitude to change …do very well. A company that
   doesn’t believe it and doesn’t encourage it managers to
   take it seriously is going to get rolled over.” John Llewellyn,
   Lehman Bros as quoted in Financial Times 2-1-07 re: Exxon shifting its position on climate
   change.

“…some large, rich countries still must be convinced…they
   are refusing to accept the consequences of their acts.”
   French President Jacques Chirac comments referring to the U. S., one of 113 nations who
   approved the release of Intergovernmental Panel on Climate Change report.

                                  Carbon Trading Overview                                       63

Information Sources
† Climate Information
† Carbon Trading             Information Overload!!!
  Experts
† Aggregators
† Trading Exchanges
† Conservation
  Organizations
   „ See Handouts
   „ Surf the web
     sources…follow the
     Linkages

                    Carbon Trading Overview            64

Great source –
Links to climate
reports

Information Sources

Great Linkages…
Æ Climate change
Æ Cons Organizations

Summary                      “The so-called and long-overstated debate about global warming is over.
 It’s time now to hear from the world’s policymakers.” Tim Wirth, President, United Nations Foundation

† Time for change in agriculture’s image re: climate impact
  „ Traditionally: seen as part of problem
  „ Opportunity ahead: be key part of solution
† Be at the table: …”if don’t will be on menu” (Sara)
  „ Identify, engage & agree on carbon trading policy issues
  „ Engage in protocol definitions; keep them simple
† RE: Marketing Carbon
  „ Insure producers are EDUCATED before
     selling…experimenting with small acreage is good tool
  „ Understand opportunities & risks; be prepared to deliver
     benefits we contract to sell
  „ Encourage professional marketing approach
         † Assess what have to sell; don’t sell too cheap; beware of
           snake oil salesmen “picking the bottom fruit”

                                         Carbon Trading Overview                                         68

Time for Questions...

            Carbon Trading Overview   69