No-till farmers reap carbon offset payments
By Nancy Jorgensen

Carbon trading programs aim to pay farmers for no-till and other practice. But look before you leap. The long-term nature of the contracts might put off some growers.

Richard Oswald has been practicing no-till techniques in northwestern Missouri since 1986. He recently signed up to receive carbon credit payments for using these practices—payments that might bring in about $2,100 for 2007.

Oswald (pictured at right) welcomes payments from the carbon offset program, even if they’re small. As he said, “It’s hard to be responsible—to help the environment and still make money.” He thinks the offset payments will be worth the paperwork involved, but his main goal with no-till is to preserve the land for his kids and grandkids.

As of mid-August, Oswald was one of about 90 no-till and strip-till farmers in northern Missouri that signed on with the National Farmers Union aggregation program. The nation’s other major pooler, AgraGate Climate Credits Corp., a subsidiary of Iowa Farm Bureau, reported that a “handful” of Missouri farmers had signed up through its program. Together, both aggregators estimate that more than 3,700 U.S. farmers will sign up for the no-till portion of the program this year.

Overall, few argue with a program that strives to reduce global warming. The carbon credit program is gaining momentum, but some are quietly questioning a few details, from environmental groups to Howard Brown, manager of agronomy services for GROWMARK, Inc., a regional cooperative based in Bloomington, Illinois.

“It’s a great thing to help farmers change their tillage practices,” Brown said. “We all want to do the right thing, to leave a better world for our children, and agriculture wants to participate. But farmers shouldn’t walk into these contracts blindly.”

We’ll get to concerns about the program in a moment. But first, here’s how it works.

No-tillers reduce carbon
The privately owned Chicago Climate Exchange (CCX), established in 2003, trades greenhouse gases like other exchanges trade commodities such as corn or soybeans. CCX’s soil-based pilot program is based on the premise that people put carbon into the air, and plants and trees take it out. Farmers and others using practices that sequester carbon, or keep it from entering the atmosphere, can sell carbon offsets to companies that emit carbon into the air, such as power producers and manufacturers.

These companies voluntarily join CCX but sign a binding legal contract that says if they don’t reduce their emissions by a set percentage over a certain number of years, they must purchase credits from those who make extra emission cuts or from offset projects such as no-till farming. The idea is to provide a monetary penalty if companies don’t reduce emissions thought to cause global warming.

Soil-based projects eligible to receive carbon offset credits include no- and strip-till farming, grass and tree planting and improved rangeland management. So far, Corn Belt no-tillers make up most of the participants. When you till the soil, it releases carbon into the air. According to CCX, science shows that no-till greatly reduces the carbon released.

Actually, farmers can’t trade directly on the exchange as individual transactions would be too small. To participate, you sign up through a company that pools acreages and then sells the credits through CCX.

Thousands sign on
Dale Enerson, director of the NFU aggregation program, has signed on more than 2,000 farmers from 14 states. Although not all acreages may qualify, Enerson expected the number of applications to double by the CCX deadline for 2006-2007 acreages, reaching 2 million acres. Enerson estimated that would result in an estimated $3 million in NFU payments to farmers for the 2007 no-till program.

“Currently, northern Missouri is where the bulk of eligible acres are located,” said Russ Kremer, president of Missouri Farmers Union, which actively promotes the program. “But new project types are being accepted all the time. Working foresters in southern Missouri may see a significant increase in income when managed forest rules are approved soon.”

The Missouri Farm Bureau has not adopted a position on the program. But the Iowa Farm Bureau’s AgraGate subsidiary has taken off. In early August, Dave Krog, CEO of AgraGate, reported that a total of 1,700 farmers had signed up with AgraGate’s soil carbon offset program, representing one million acres in 16 states. Based on today’s market prices, Krog estimated that AgraGate will send farmers about $2 million for the 2007 no-till program.

CCX originally set a June deadline for no-till acreages, then extended it to August and later to Sept. 15. “CCX allowed the extensions because we and other aggregators have been swamped with enrollment questions and concerns about getting producers completely enrolled in time,” reported Enerson.

If you signed up by Sept. 15, you will receive payments for both 2006 and 2007 crops, he added. If you sign up by year-end, you can only be paid for 2007. Either way, your contract allows you to draw payments for each year going forward through 2010.

It’s worth it for Oswald
Back in Langdon, Mo., Oswald rents 1,000 of the 1,500 acres that he has enrolled from cousins who now live in New York City. “They heartily approve of the decision to operate their farm in a way that conserves resources while adding to farm income,” Oswald said.

No-till acres in Oswald’s region will receive 0.6 carbon credits per acre from CCX. At press time, Enerson reported that these credits were trading at the equivalent of $2 per acre, although the market price changes from day to day. When you multiply this price by Oswald’s 1,500 acres, it adds up to about $3,000, if all acres are accepted into the program. CCX reserves 20 percent of the credits in escrow in case farmers fail to maintain the contract (CCX will send an independent verifier to check 10 percent of all entered acreage each year). In addition, the National Farmers Union takes 10 percent to cover its costs. This leaves Oswald with an NFU check for about $2,100 for 2006, and the same for 2007.

Oswald estimated he spent 3 hours filling out online forms and gathering paperwork to send in, mostly documents he had already completed for federal conservation programs. “It’s not something I like to do, but it’s worth it,” he said.

Brown questions details
Oswald’s contract requires him to maintain conservation tillage practices for 5 years. Representatives with CCX have told GROWMARK’s Brown that once this pilot project is completed, contracts might eventually run 20 to 50 years. Brown questions whether carbon offsets will last that long, and whether offsets will continue to trade at current prices over the years.

“If you sell carbon credits by adopting no-till, I see no way a producer will ever be released from a contract unless he buys the contract back, or he ties the contract to a land deed in the event the land is sold. If a producer sells carbon that is stored in the soil, someone will hold him liable for carbon loss if he releases the carbon through tillage,” he said, adding that a single tillage pass could release a significant amount of carbon sequestered by no-till practices.

Brown specializes in soil fertility and fertilizers with a focus on soil and water conservation, and has been involved with a National Global Climate Change study group hosted by the U.S. Department of Agriculture. “Farmers must also keep in mind that, theoretically, there is only so much carbon they can store in their soil,” he said. Once you hit the natural limit, there may be no additional credits to sell—producer payments may stop while the responsibility to store the sold credits may continue.

Brown thinks farmers and policy leaders should ask the following questions before signing a contract: What is the length of the contract? What will happen if a contracted field is tilled? Who’s responsible to maintain the integrity of the carbon credits if the land changes hands?

Say you can get past those questions. If you’re a conventional tillage farmer, will the CCX program convince you to switch to no-till? Oswald doubts it. He tried to convince other farmers to take part in the program, without much response.

Brown agrees that the carbon credits program may not pay enough to motivate a conventional tillage farmer to change his or her ways. He also thinks that no-till practices in the Midwest may have reached a peak. But overall, both Brown and Oswald feel that the exchange program represents a potential good. “The adoption curve won’t change much unless we provide more incentives and address some critical questions,” Brown concluded.

Both NFU and AgraGate expect participation to continue to grow in future years. Enerson estimated that no-till acres make up about 5 to 10 percent of all cropland farmed in the U.S., leaving millions of eligible acres that haven’t been enrolled. “With fuel prices up, and the potential for no-till, we should see more people sign up,” he said. “It’s a wide open field.” He expects even more growth in rangeland participants.

Does it make sense?
Environmental groups don’t necessarily welcome offset trading with open arms. Dale Bryk, senior attorney for Natural Resources Defense Council voiced her biggest issue with CCX: “Are we paying people to do what they’re doing anyway, like no-till?”

NFU’s Enerson countered Bryk’s argument. “Even if you’ve practiced no-till for a long time, it continues to add carbon sequestration. The worst thing we should do is have farmers plowing up no-till acreages to get into the program later. We want to make sure to give credit to the early adapters.” No-till farmers benefit the environment in other ways, he added, by using less diesel fuel and by diminishing soil erosion and water run-off.

Some agricultural leaders express concern that the voluntary program may lead to mandatory measures for farmers. Missouri Farmers Union’s Kremer comments on the idea. “A mandatory cap and trade system or something like it may become federal legislation soon,” he said. “These systems are based on market trading, so it is more likely that the price of carbon will guide farm practices than environmental groups.”

For information on the carbon offsets program, contact AgraGate at (866) 633-6758 or www.agragate.com.

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