PotentialCarbon Market Opportunities

for AgricultureDave Beede1 and Wendy Powers1, 2

Depts. of Animal Science1 and Biosystems and Agricultural Engineering2

MSUE Dairy, and Animal Agriculture and the Environment Teams1, 2

Topics1. Greenhouse Gases (GHG) &

Global Warming2. Overview of Carbon Markets Concept, structure Definitions (CC & CO)

3. Ag Examples: Potential CC Projects Essential Criteria: CC Generating Projects

4. Summary, Discussion

Major Greenhouse Gases

• carbon dioxide: CO2

• methane: CH4

• nitrous oxide: N2O

Concentrations of

atmospheric carbon

dioxide and methane:

• stable until Industrial

Revolution (ca. 1800)

• then rising dramatically

the last 200+ years

• nitrous oxide: 40%

increase since 1800

methane

carbon dioxide

Source: Climate Change. Landcare Research. Accessed January 23, 2009 from http://www.landcareresearch.co.nz/research/globalchange/climate_change.asp.

Changes in Greenhouse Gases in the Earth’s Atmosphere

32% increase

2.5-fold increase

Top 20CO2 Emitting Countries in

2006

Rohde, Robert A. 2006. Global Warming Art. Accessed January 22 2009 from http://www.globalwarmingart.com/wiki/Image:Greenhouse_Gas_by_Sector_png.

Greenhouse gases (GHG) and global warming potential (GWP) relative to CO2

Gas Atmospheri

c

Lifetime

(yrs)

Abundan

ce

1998

(ppt)a

GWP

20 yr

time

horizon

GWP

100 yr

time

horizonb

GWP

500 yr

time

horizon

Carbon

dioxide

5-200 366 ppm 1 1 1

Methane 12 1745 62 23 7

Nitrous oxide 114 314 275 296 156a (ppt) = parts per trillion. CO2 is present at parts per million concentrations.b 100 yr time horizon = the time horizon most commonly used when talking about GWP.

GHG

Atmospheric

Life (yrs)

Abundance

in 2000a

GWP

100-yr horizonb

carbon

dioxide 5 - 200 372 ppm 1

methane 12 1748 ppb

nitrous

oxide 114 314 ppba CO2 = parts per million (ppm); CH4 and N2O = parts per billion (ppb). b 100-yr time horizon most commonly used to define GWP.

23

297

OverviewCarbon Markets

Goals of Carbon Markets

1. Reduce GHG emissions and global warming

2. Provide an organized, competitive, market-driven mechanism to reduce GHG emissions

Carbon Market Overview

Carbon Offset Purchase

Generators (sellers):• Agricultural businesses• Other entities producing

quantified, verified CC

Carbon Credit Generation

Polluters (purchasers): • Coal-fired power plants CO2

• Landfills CH4

Carbon Markets

GHG emissions reduction project Carbon Credits

Carbon Offsets

$$Beede, 2009

Carbon Credit (CC)• CC = new commodity (legal tender) with

revenue potential for agriculture• CC = ‘financial instrument’ created from

a GHG reduction project• 1 CC = 1 metric ton (2204 pounds)

carbon dioxide equivalent [CO2e] prevented from entering or removed from the atmosphere

Carbon Credit Generation• CC generated on-farm by a practice or project to

reduce GHG emissions:- not producing GHG – CH4, N2O- destroying (e.g., burning) – CH4

- removing from air – C sequestration• CC generated on-farm: measured and verified

with an independent, third-party verifier• CC sold in carbon markets to others (polluters)

that purchase “carbon offsets”, as an environmental attribute

Two Types of Carbon Markets

• Involuntary market (legislated, regulated)– in Europe, Japan; Kyoto Protocol countries– limit on emissions allowance (amount) for a

country, company, or market sector

• Voluntary market– in U.S. (e.g., Chicago Climate Exchange)–only legally binding voluntary market with

clear and transparent carbon pricing

Other Recent Climate Initiatives

• California Climate Action Registry (CCAR)

• Western Climate Initiative– to reduce GHG emissions

• Regional Greenhouse Gas Initiative (RGGI)–Northeastern states – regional mandatory

market-based registry

Observer

Partner

Carbon Markets• Cap-and-Trade System - demand• Market price for CC and CO depends on

demand• Demand affected by Cap and “Emissions

in Excess of Cap” by individual polluters (e.g., coal-fired power plants)

• Absolute, incremental reductions in GHG through time; e.g., 5%/ year for polluters

Chicago Climate Exchange (CCX)

www.chicagoclimateexchange.com.

L

Carbon Market Prices• U.S. projected prices for CC

if/ when a federal Cap-and-Trade System implemented and demand for CO increases: $10 to 12/mt by 2012 $20 by 2020 $40 to 45 by 2030 - projected

Essential Criteria:For implementation of CC generating project:

1. project baseline and additionality2. quantification, monitoring and

verification (QMV)3. permanence4. leakage

These four criteria (among others) likely will be necessary for a project or practice to receive monetary credit and/or (likely regulatory credit for its actions).

Dairy - Anaerobic Digester ProjectPotential “GAS INCOME”

Capture methane from anaerobic digester:1. Generation of electricity, heat or power2. Plus, carbon credit possibility

• Both reduce methane emissions, and global warming (potential) @ 23X

• Could provide opportunity for additional revenue

1. Project Baseline and Additionality

• Criterion: ability to accurately

quantify the project baseline.

• Additionality: project must

establish that additional GHG

reductions would not have

occurred without the CC generation

project.

Baseline and Additionality

Blue area = additionality

Fernandez, et al. 2005. Greenhouse gas mitigation planning: A guide for small municipal utilities. (http://www.bren.ucsb.edu/research/gp_past.asp).

2. Quantification, monitoring andverification (QMV)

Criterion: accurate quantification, monitoring and verification methods for CC generating project.

Examples: Meter and collect biogas (methane) Possibly (well-accepted) empirical

methods Third party verification – likely the

standard No standardized methods for QMV yet

Dairy Anaerobic DigesterSingle Cow Example

• Single dairy cow example:• 5 metric tons CO2e/year =

5 carbon credits/year (estimate)• Dairy Anaerobic Digester – methane capture• Potential gross revenue from Carbon Credits:

$/carbon credit (/metric ton CO2e)

Cows 1 5 10 20 40

1 5 25 50 100 200

100 500 2,500 5,000 10,000 20,000

1000 5,000 25,000 50,000 100,000 200,000

2000 10,000 50,000 100,000 200,000 400,000

Dairy Anaerobic DigesterSingle Cow Example

• Single dairy cow example:• 5 metric tons CO2e/year =

5 carbon credits/year (estimate)• Dairy Anaerobic Digester – methane capture• Potential gross revenue from Carbon Credits:

$/carbon credit (/metric ton CO2e)

Cows 1 5 10 20 40

1 5 25 50 100 200

100 500 2,500 5,000 10,000 20,000

1000 5,000 25,000 50,000 100,000 200,000

2000 10,000 50,000 100,000 200,000 400,000

The AgSTAR Program

Example: Carbon SequestrationConservation Tillage -No-till and strip-till systems• Expect C soil sequestration: 0.5 to

0.75 metric tons CO2 /acre per year• Corresponds to soil offset carbon

rate of 0.6 metric tons/acre per year(current issuance rate of CCX)

Example: Carbon Sequestration

No-till and strip-till systems• No-till and strip-till soils continue to sequester

carbon at about this rate for at least 30 to 40 years before new carbon equilibrium is reached

• Permanence– If acreage remains in no-till or strip-till, amount of

additional carbon stored in the soil will remain

– If no-till or strip-till acreage is tilled again in the future, soil carbon levels will begin to decline as CO2

emissions from the soil exceed CO2 storage rates

3. PermanenceCriterion: a project to generate carbon credits or reduce GHG emissions should have as close to 100% permanence as possible.

• Permanence is length of time or degree to which GHG are removed from, or kept out of the atmosphere.

• Achieving completely permanent GHG reductions through mitigation projects is an environmental and economic priority.

4. Leakage• Criterion: leakage (displacement of GHG

emissions to outside project boundaries) must be avoided.

Activities shifting – a project displaces an activity Leakage potentially most common in land-based

mitigation projects To minimize potential leakage, land-based projects

should be sited in areas with few or no competing uses

GHG leakage associated with a project should be quantified

Market effects – a project alters supply and demand of goods and services causing a change in GHG emissions elsewhere

Carbon Markets Summary1. Carbon markets may provide a financial

opportunity to adopt conservation and mitigation technologies and practices to reduce GHG by polluters (carbon offset buyers)

2. Potential revenue source for some agricultural businesses (carbon credit sellers)

3. May help compensate for additional on-farm costs associated with voluntary and/or future mandatory air quality improvements and energy management

Carbon Markets Summary4. Today CC price and carbon markets are

in their infancy in the U.S.5. Projected to change dramatically in the next

few years: global warming, new USadministration, global social responsibility tofuture generations

6. Management and facilities planning for thesefuture opportunities should be part of thethought processes

Proposed Greenhouse Gas (GHG) - RelatedFederal Legislation - 2009

In 111th U.S. Congress - 2009Number Name Sponsor Note

HR585 Environment & Public Health Restoration Act of 2009

Lee

HR594 Save Our Climate Act of 2009 Stark Carbon tax

HR232 Greenhouse Gas Registry Act

HR391 To amend Clean Air Act to provide that GHGs are not subject to the Act, and for other purposes

As of February 11, 2009; Jake McCarthy.

Proposed Greenhouse Gas (GHG)-RelatedFederal Legislation - 2008

In 110th U.S. Congress - 2008Number Name Sponsor Notes

S1411 Federal Government Greenhouse Gas Registry Act of 2007

Lautenbur

gHR6877 Greenhouse Gas Registry Act

S1177 Clean Air Planning Act of 2007 CarperHR2701 Transportation Energy Security and Climate Change

Mitigation Act of 2007Oberstar Incorp.

into

HR3221HR620 Electric Utility Cap and Trade Act of 2007 FeinsteinHR6186 Investing in Climate Action and Protection Act MarkeyHR2701 Transportation Energy Security and Climate Change

Mitigation Act of 2007Oberstar Incorp.

into

HR3221S2191 America's Climate Security Act of 2007 LiebermanS3036 Lieberman-Warner Climate Security Act of 2008 BoxerHR2809 New Apollo Energy Act of 2007 InsleeHR3221 Renewable Energy and Energy Conservation Tax Act

of 2007Pelosi

As of February 11, 2009; Jake McCarthy.

Questions, discussion and conversation?

• The end