Brasher: Value of climate credits, foreign ownership concern U.S. farmers

 Des Moines Register
September 27, 2009Des Moines Register 
by PHILIP BRASHER
pbrasher@dmreg.com
September 27, 2009

www.desmoinesregister.com

Washington, D.C. – Farmers believe they can play a part in reducing greenhouse gas emissions, but they want money for what they do. That demand is proving to be tough for Congress to do.

A House-passed climate bill would allow farmers and landowners to earn credits for measures that can remove or keep carbon out of the atmosphere. When farmers stop tilling their fields or convert cropland to pasture, carbon in the form of plant material is kept in the soil rather than released into the air.

The credits then could be sold to utilities or other companies that would be required to reduce emissions of carbon dioxide and other greenhouse gases.

However, the House bill includes restrictions on farmers’ carbon-saving projects that could make the credits virtually worthless, according to farm groups. David Miller, who helped set up a carbon-credit program for Iowa Farm Bureau, said credits could be worth "next to nothing."

The legislation also includes provisions to guarantee that most of the credits permitted by the bill would go to landowners overseas who agree not to cut down rain forests.

Senators have expressed concern that allowing the buying and selling of credits will primarily benefit foreign landowners who generate the credits and hedge funds and other big investors who speculate in them. There are differences over how tightly the credit market should be regulated: Some lawmakers fear a repeat of the financial meltdown tied to subprime mortgages.

Sen. Bob Corker, R-Tenn., called the proposed credit trading a "Rube Goldberg notion" that would wind up "transferring wealth out of this country to other countries around the world." Some Democrats also have concerns about the credit trading. "We are seeing a system that is just inherent with special interests," said Sen. Maria Cantwell, D-Wash.

Credits essential to climate bill and to win farmers’ support

Carbon credits are seen as critical to any climate bill. For one, they are supposed to lower the cost of the bill to power companies, manufacturers and ultimately consumers. Emitters would buy the credits in lieu of cutting their emissions or purchasing pollution permits from the government.

The credits also are important to winning farm-state votes for a climate bill. Revenue from selling credits could help farmers offset the higher prices for fuel and fertilizer as a result of the controls on greenhouse gas emissions.

The House bill passed narrowly after the credit provisions were loosened at the insistence of the House Agriculture Committee’s chairman, Rep. Collin Peterson, D-Minn.

Peterson’s changes sought to ensure that growers could earn credits for soil-measures they have undertaken, such as switching to no-till farming or putting land in pasture. Peterson also got the U.S. Agriculture Department, an ally for farmers, put in charge of regulating the credit-earning projects.

However, the bill contains a key provision that would allow many farm projects, such as no-till farming, to qualify only as "term," or temporary credits.

The idea is that credits for carbon-saving farm practices shouldn’t be worth as much as long-term forestry projects because there’s no guarantee growers won’t plow their land and go back to their previous methods of farming. Farmers would have to follow the carbon-saving practices only for the length of their credit-earning contract, likely five years.

Farmers worry: Short-term credits will provide little help

But farm groups worry the short-term credits would be of little use to utilities and other polluters that would buy credits to avoid cutting their own emissions. Given that credit prices are likely to rise in the future, companies that need them would opt for long-term credits to lock in their costs.

Short-term credits "would be highly discounted by the marketplace," said Miller, director of research and commodity services for Iowa Farm Bureau.

Roger Johnson, president of the National Farmers Union that supported the House bill, has the same worry about the credit restrictions.

"That’s going to make it extraordinarily difficult to expect" farmers to join the program, he said. One alternative, he said, is to classify soil credits the same as other credits but assign them a lower value. That way, farmers still could earn something for them.

There’s little disagreement that foreigners will earn the majority of credits because land values overseas are lower than in the United States. Environmental Protection Agency analysts said the foreign credits quickly would reach a billion tons a year, half the total allowed by the House bill. Domestic credits likely would lag far behind.

The credits will go first to landowners in areas of Africa, southeast Asia and Latin America who sign agreements not to clear forests, said Brent Sohngen, an Ohio State University economist who studied the credit market. A landowner who agreed not to clear a forest for 25 years could earn about $170 an acre in carbon credits at a carbon price of $27 a ton, Sohngen said. That’s far more than landowners could earn from renting the land for grazing, he said. As the carbon price rises, more forests would come under credit contracts, and landowners would convert farm or ranch land into new forests to get credits.

Some U.S. farm groups worry that the availability of cheaper international credits will depress prices for domestic credits. Barring international credits would sharply increase prices for emission allowances as much as 89 percent, raising costs for utilities and their customers, according to government studies. It also would encourage landowners overseas to clear forests for farming and increase greenhouse gas emissions, Sohngen said. "You could encourage quite a lot of emissions in other countries," he said.

The trading of credits is a worry for some lawmakers, who fear a repeat of the speculation that brought on last year’s financial meltdown and that is often blamed for wide swings in the prices of farm commodities and oil. At the same time, investors’ money will be needed to generate the offset projects.

Sen. Tom Harkin, D-Ia., opened a recent Senate hearing by warning that "some of the ideology and recklessness that helped drive our economy and our market over the cliff are now surfacing in discussion of a cap-and-trade system."

Companies, senators debate whether to restrict prices

Some of the top companies on Wall Street, including Goldman Sachs and JPMorgan Chase and Co., formed a market called the Green Exchange to trade in futures contracts tied to carbon credits and other types of pollution allowances. The companies are lobbying to limit the restrictions that Congress puts on the trading.

Some senators have called for putting limits on how high credit prices can go as a way of softening the impact on energy bills.

"We need to provide assurances that the costs" to consumers "will not go out of control," said Sen. Jeff Bingaman, D-N.M., who is chairman of the Senate Energy and Natural Resources Committee.

But restrictions on prices would limit the value of offset projects and discourage investment in them, Julie Winkler, a board member of the Green Exchange, told another committee recently.

Additional Facts
Will farmers sell carbon credits?
Tim Kaldenberg, who farms in Monroe County, already participates in a carbon-credit program started by the Iowa Farm Bureau. Kaldenberg earns credits for 410 acres of land, some of which he farms without tillage and the rest he seeded to grass. Those two practices store carbon in the soil. Utilities and other companies that want to offset their carbon emissions can buy credits from farmers such as Kaldenberg.

But without regulations on carbon yet, the credits have little value. Kaldenberg’s last payment was $50. There are also questions about whether existing contracts, such as Kaldenberg’s, would qualify under a pending climate bill.

Whether he and other farmers get involved in offset projects in the future will depend on how much it costs to comply with the program Congress enacts, he said. Such a program will include some regulations to verify that farmers are doing what their contracts require.

"When more money is involved, they want more accuracy," Kaldenberg said.

Contract lengths also will make a difference, said David Miller, who help design the Farm Bureau’s carbon-credit program. Farmers in Iowa are reluctant to sign carbon contracts for land they rent in fear they will be held liable if carbon-saving practices are no longer carried out, he said. Land is typically rented on one-year leases.

Also, many farmers are skeptical about global warming, Kaldenberg said. "They are going to have a harder time signing up for a program when they believe the problem is a hoax to begin with," he said.

http://www.desmoinesregister.com/apps/pbcs.dll/article?AID=/200909270405/BUSINESS03/909270332

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