By ANN HINCH
Assistant Editor

CHICAGO, Ill. — Trading carbon emissions credits, also known as the offset market, could be a net long-term benefit to farmers and ranchers if cap-and-trade legislation passes in Congress.

At least this is the hope of more than one agricultural organization. Roger Johnson, president of the National Farmers Union (NFU), said according to the U.S. EPA and other sources, about 7 percent of the nation’s greenhouse gas (GHG) emissions are from agricultural activities. But, it’s also estimated the ag sector could sequester, or store, as much as 20-25 percent of all U.S. GHG emissions. “That’s a huge opportunity gap,” he said.

Johnson said a USDA study shows long-term gains in agricultural revenue by farmers selling stored GHG emissions allowance credits on the offset market, to industry, coal burners, fuel refiners and the like, which put out enough emissions to fall under EPA regulation.

There is a financial cost to the ag sector in the near-term – the study notes that while sequestering may lead to less planting and higher crop prices, this would put pressure on the livestock and dairy sector. But Johnson said the study begins showing net gains for ag before 2020, and after 2020 he said ag’s cost should be much less than revenue gained from selling on the offset market.

Many companies and offset providers already participate in the voluntary Chicago Climate Exchange (CCX), which is a legally binding financial market trading in emissions credits, begun in 2003. The NFU acts as an aggregator to collect and package emissions credits for sale on the CCX.

The CCX website states that benefits of participation include helping drive policy (i.e., cap-and-trade laws), providing data for same, being recognized as an early actor should an offset market become mandatory and learning early how to navigate the offset exchange market.

Right now, each metric ton of carbon offset is selling at well under $1 (it peaked at above $7 in June 2008, according to CCX data). According to the Congressional Budget Office, if cap-and-trade becomes law this year, by 2011 that could increase to $15 per metric ton and by 2019, to $26.

“We have real producers now getting money” through the CCX, said Dennis Nuxoll, senior director of government relations for the American Farmland Trust (AFT). He said a mandatory exchange could open “a big, wide universe of potential offsets” for GHG allowance sales.

Farmers are not earning so much right now, Johnson said, because there were companies that did participate in the CCX, which went out of business last year with the economic downturn – and were obviously no longer buyers. But the larger the offset market and the more participants, he said, the lower the overall cost to society.
The AFT agrees the offset market could be a good tool for farmers to earn $2 billion-$3 billion a year, eventually, if cap-and-trade becomes mandatory. What’s more, Nuxoll said, the proposed legislation does provide allowances for petroleum fuel and fertilizer producers to transition to lower GHG emissions standards over 20 years.

He said this is to protect American companies for a while against international competitors in the offset market and to help keep input costs from rising too much for farmers. Nuxoll said economic modeling performed by the USDA, Iowa State University and the University of Missouri shows even with cap-and-trade, the increased cost for diesel, fertilizer and electricity to farmers over the next 20 years should stay under 5 percent.

“We want this problem solved,” Johnson explained, “but we don’t want to have to spend more money to do it.”

Nuxoll also said this legislation will provide opportunity for more farmers to lease land for wind turbines and earn income from other renewable energy advances, since a proposed renewable electricity standard (RES) within it requires utilities to eventually obtain 20 percent of their power from renewable sources.