Confronting Climate Change Though Environmental Trading:

Opportunities for Farmers

Testimony of

Robert Bonnie

Environmental Defense

Washington, DC

Before the

United States Senate Committee on Agriculture, Nutrition and Forestry

March 29, 2001

My name is Robert Bonnie and I am an Economist with Environmental Defense, a

national, non-profit environmental group that promotes science-based, economically

sensible solutions to environmental problems. Environmental Defense has been a leading

proponent of practical, market-based solutions for a variety of environmental and natural

resource issues.

On the issue of climate change, we have long advocated ôcap and tradeö programs, also

called emissions trading, that harness the power of market forces to meet air pollution

targets in a cost-effective manner. Of most relevance to todayÆs hearing is our view that

markets provide a significant opportunity for farmers to profit from activities that

generate greenhouse gas benefits. Specifically, as part of the upcoming Farm Bill, we

hope Congress will consider legislation that spurs the interest and participation of the

agricultural sector in environmental markets by providing farmers with grants to assist

them in undertaking carbon sequestration projects.

Notwithstanding the billions of dollars that the US government pays annually to farmers,

many farmers still have a tough time making ends meet. Growing up on a farm in

Kentucky, I can attest to the fact that my fatherÆs law degree proved to be particularly

useful given that neither my familyÆs cattle operation nor our horse business were

particularly lucrative ventures. Crop prices are not only near record lows today but they

have experienced long-term declines. In addition, public demand for production of

environmental benefits from farming is growing. Environmental Defense strongly favors

expanding the amount of federal farm payments dedicated to protection of water quality,

wildlife conservation and other environmental goals. Importantly, we also believe that

emerging environmental markets can provide an additional source of revenue to reward

farmers for generating environmental services that benefit society at large.

Under a greenhouse gas cap and trade system, farmers may one day be paid for activities,

such as carbon sequestration, that produce real, verifiable greenhouse gas benefits. Those

payments will come not from the government, but from the range of industrial sources

subject to greenhouse gas emissions targets. Clearly, no such market exists today û

especially in light of President BushÆs recent reversal on regulating carbon dioxide

emissions from power plants. However, given the overwhelming scientific evidence for

global warming, there is a high likelihood that US industry will one day be subject to

such caps. By developing markets for greenhouse gas offsets today, farmers may well

stand to profit tomorrow.

There are many potential opportunities for farmers to participate in a market for

greenhouse gas offsets, including methane capture, improved management of nitrogen

fertilizers, production of biomass fuels, and carbon sequestration. I want to concentrate

today on carbon sequestration.

Combustion of fossil fuels is the primary source of anthropogenic, greenhouse gas

emissions. A comprehensive solution to global warming must address this central fact.

However, often lost from the debate is the significant role of land use activities in the

global carbon cycle. The Intergovernmental Panel on Climate Change estimates that land

use activities, particularly tropical deforestation, account for approximately 20% of

global, human-caused greenhouse gas emissions. In short, the land use sector is part of

the problem, but it can also be part of the solution.

Through improved land management practices, farmers can remove carbon dioxide from

the air and increase the storage of carbon in plants and soils. In so doing, farmers could

earn carbon credits in a variety of ways: (1) by reforesting marginal agricultural lands; (2)

by bringing land under conservation tillage; (3) by using silvi-pasture and other agro-

forestry systems; (4) by planting windbreaks; (5) by establishing biomass plantations

and/or switchgrass on former cropland û to name a few. In addition to the climatic

benefits, these activities could have significant potential co-benefits such as erosion

control, wildlife conservation, and restoration of native forests, to name a few.

How much additional carbon can be cost-effectively sequestered in agricultural soils in

the United States? Quite frankly, itÆs difficult to say û estimates range widely. Any such

analysis depends in large part the assumed market price of carbon credits and the cost of

measuring and verifying carbon stock changes on farm lands. As for the market price of

carbon, this will depend almost entirely on policy decisions and market interactions that

are well beyond the scope of the farm bill. Measurement, verification, carbon accounting,

and other transaction costs associated with sequestration efforts, however, are quite

another matter.

While many US farmers are very familiar with conservation tillage, reforestation and

other sequestration practices, they have little experience with measurement and

accounting systems that will be required for carbon sequestration markets to work.

Indeed, markets for land-based carbon crediting are in their infancy and there is little

practical experience for policy-makers and farmers to draw upon. Moreover, crediting for

land use activities under the Kyoto Protocol has been particularly controversial.

The federal government could play a very valuable role both in jump-starting the market

and in developing on-the-ground experience in carbon crediting by providing grants to

farmers to develop measurement, verification and reporting systems. For example, with

respect to estimation of carbon stocks, grants could help fund the development of

measurement systems that are both accurate and cost-effective. Such a program would

provide valuable insight on carbon measurement methodologies including the use of

sample plots, computer models, and remote sensing.

A grants program could also afford an opportunity for farmers and others to examine

questions related to leakage; that is, ensuring that carbon sequestration activities that

result in reduced yields of crops donÆt simply shift greenhouse gas emitting activities to

other properties. Crediting for carbon sequestration activities should also not simply

reward ôbusiness-as-usualö activities. That is, a sequestration market should encourage

farmers to alter their land management practices so as to produce real greenhouse gas

reductions for the atmosphere.

Permanence is another issue that should be assessed. Carbon sequestration is reversible,

meaning that carbon stored in soils and plants can later be released as a result of altered

land management practices or natural disturbances. While this issue is often cited as the

most difficult obstacle confronting carbon sequestration markets, it should be relatively

easy to develop crediting systems that account for the potential reversibility of carbon

stocks. One proposal to deal with this issue is to issue credits that expire after a fixed

term. For example, a landowner might enter into a ten-year contract under which he

stores 100 tons of carbon through reforestation of marginal agricultural lands. The

purchaser of the credits, a utility for example, can use those credits as offsets. However,

at the end of the ten-year period, the utility must enter into a new contract with the

landowner to maintain those 100 tons or replace those tons from some other source.

Besides developing crediting systems that ensure real, verifiable greenhouse gas benefits,

the government should also ensure that crediting of land use activities doesnÆt lead to

perverse environmental outcomes such as encouraging conversions of natural ecosystems.

Any incentive for ecosystem conversions can be avoided by setting carbon stock baselines

that account for any land clearing activities prior to initiation of the sequestration

activities.

Such a grants program would provide farmers with greater insight into the potential

profitability of such markets. For policymakers, this effort would also shed light on the

utility of land-use crediting as a solution for addressing climate change. Thus, it is

important that any effort under the Farm Bill provide an opportunity to evaluate and learn

from the projects funded by the grant program.

Some who question the science surrounding climate change or who oppose the Kyoto

Protocol might argue that any discussion of carbon credits is the proverbial camelÆs nose

under the tent with regard to future regulation of greenhouse gas emissions. That is

unfortunate. Everyone, however, can agree that there is a reasonable possibility that the

government will at some time act to restrict greenhouse gas emissions. Many

corporations, for example, increasingly recognize that they may one day operate in a

carbon-constrained world and are taking meaningful steps to respond to this possibility.

Increasing our knowledge of sequestration crediting today will provide important insight

into future discussions of policies to address climate change. It will also provide an

insurance policy against the future risk of climate change.

In changing his position on capping carbon dioxide emissions from electric utilities,

President Bush relied on a recent analysis from the US Department of Energy that

suggested that the costs of regulating emissions could be high. Among other short-

comings -- and there are many, the analysis did not examine the possibility of utilities

having access to carbon offset markets from the agricultural sector. At the same time, the

analysis recognized that providing utilities with flexibility to meet their carbon dioxide

targets over time would reduce the costs of regulation. By investing in real greenhouse

gas reductions from carbon sequestration and other offsets, utilities could, in effect, buy

some of that time thereby reducing the costs of regulating carbon dioxide emissions cuts

substantially. Our country should examine such opportunities.

The investments we make today in learning more about solutions like carbon

sequestration could pay important dividends when the United States decides to seriously

confront climate change.