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Payments for carbon storage – finally!

Carbon credit trading begins January 2006, but rules for farmer participation in the market are not yet finalized. A pilot project may help establish the ground rules.

November 19, 2007  By Helen McMenamin

20aAfter years of negotiation, the federal government is paying farmers to use
soil as a carbon sink to reduce greenhouse gases. Storage of CO2
as organic matter in agricultural soil is the only way to remove CO2
from the atmosphere. Forestry, once touted as a carbon sink, is now seen as
storing carbon in one place while releasing it in another when trees are harvested.

So, how will farmers benefit from all the hot air around greenhouse gases?
A pilot program is paying farmers to store carbon in soil through zero-till.
It pays about $2 an acre in Brown and Dark Brown soil zones, and $6 in the Black
and Grey zones.

Just 205 farmers, mainly in Saskatchewan, are involved in the three year pilot
project run by the Saskatchewan Soil Conservation Association (SSCA) under contract
to Environment Canada. Each farmer has signed up 100 hectares (246 acres) for
the three year program.


"It's a learning program," says Blair McClinton, SSCA executive manager.
"We're looking into administrative procedures and information needed, as
well as definitions of zero-till and how much land might be withdrawn from a
program each year."

SSCA has been the main voice for agriculture in carbon offset negotiations
because it sees carbon credits as part of soil conservation. Plus, it is a new
source of income that may expand in the future.

If and when carbon storage becomes a significant income stream for farmers,
it will be largely due to the efforts of SSCA and its board, particularly former
director, John Bennett, a farmer at Biggar, Saskatchewan. He has gone to countless
meetings as a SSCA representative to argue that farmers who have built up soil
organic matter own it. Without this, the government might have assumed ownership
of soil organic matter or called it part of the 'business as usual' scenario,
not eligible for payments.

Value of carbon credits limited by government
The value of carbon offset contracts appears limited, at least in the near future.
The large final emitters (like utility companies) have lobbied successfully
for a ceiling of $15 a tonne of CO2e (CO2
equivalents) for credits they buy. They have also persuaded the government to
cut its emissions reduction targets by about a third.

"The energy lobby has done their job well," says Bennett. "I'm
afraid agriculture might be the sacrificial lamb, the industry that pays."

Emissions credits are traded in contracts of 1000 tonnes of CO2e.
Chicago futures have not been active yet, but in Europe prices are around $30
a tonne, but these are permanent credits.

Environment Canada is paying just over $11 a tonne a year for temporary credits
in the SSCA pilot project. After administration, verification and legal fees,
that works out to $2.38 an acre in the Brown soil zones and $5.43 an acre in
the Black and Grey zones.

The payments are based on estimated carbon storage. The numbers are likely
on the low side, but the cost of showing greater carbon storage possibly exceeds
potential benefits.

For SSCA project credits, some fields must be checked by an independent third
party to verify management practices. Meyers, Norris, Penney, an accounting
and management consulting firm, will check SSCA fields for zero-till with less
than 33 percent seedbed utilization, no fall banding, and no silaging or removal
of residues.

"The value of soil carbon to the nation as a whole is considerable,"
says Edgar Hammermeister of Alameda, Saskatchewan. He is working towards taking
over from Bennett as SSCA point man on carbon offsets. "But, as farmers,
we pitch in and do more than our share too often. For each tonne of CO2e
stored in the soil, about 60 pounds of N worth $30 is also tied up. As the price
of N goes up, so does the cost of maintaining soil organic matter. I think hard-pressed
farmers may want to harvest that N unless there's a significant benefit to leaving
it in the soil."

The government may be over-estimating farmers' willingness to accept small
payments for sharing information, doing paperwork and allowing it to be verified.

Many unknowns remain, but farmers may have won some battles. Environment Canada
has accepted that farmers own and control soil organic matter. The government
planned to pay only for zero-till started after 2008, now they pay on land zero-tilled
since 2000, but at a discounted rate.

Land under permanent tame grass and reduced tillage also qualifies for carbon
offset credits, but if grass was seeded under the Green Cover program, landowners
have to pay back grants to benefit from the resulting carbon credits. Bennett
advises farmers in other sectors to watch for government appropriation of agricultural
soil sinks as their due for services to farmers.

"I hope carbon offsets are not a classic loss for agriculture," says
Bennett. "Farmers could lose a billion dollar asset while we deal with
more immediate challenges." -30-



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