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Cultivating Carbon: An Exploration of Carbon Markets and Carbon Offsets in the Agricultural Sector

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Title:
Cultivating Carbon: An Exploration of Carbon Markets and Carbon Offsets in the Agricultural Sector
Creator:
Bowen, Richard
Publication Date:
Language:
English

Subjects

Subjects / Keywords:
Agricultural land ( jstor )
Agriculture ( jstor )
Cap and trade system ( jstor )
Carbon ( jstor )
Carbon offsets ( jstor )
Farmers ( jstor )
Forests ( jstor )
Jury sequestration ( jstor )
Pollutant emissions ( jstor )
Soils ( jstor )
Carbon offsetting
Emissions trading
Emissions trading--Economic aspects
Genre:
Undergraduate Honors Thesis

Notes

Abstract:
This project explores the growth of carbon markets and carbon offsets, with emphasis on their economic qualities and how they may affect agricultural operations in terms of benefits, opportunities, risks, and costs. Research shows carbon markets and carbon offsets are already in wide use outside the United States, and suggests domestic implementation will result in rapid expansion of the international market. Research also suggests inadequate verification procedures and problematic approval standards for existing carbon offsets. The agricultural and forestry sectors have much opportunity to gain from carbon markets and carbon offsets if a cap-and-trade proposal emerges in the United States. Most offset projects involve management of soil carbon and forests, but are not available to all farmers and involve risk of sequestration reversal due to unforeseen events. Carbon markets and offsets offer a promising means of controlling greenhouse emissions and creating business opportunities; there exist, however, concerns regarding risks, and opportunities to manipulate or exploit systems currently in place. If additional risk management and verification measures are infeasible, and expansion of maintenance staff for carbon markets is impractical, more effective greenhouse gas control systems such as carbon taxation should replace agricultural carbon markets. ( en )
General Note:
Awarded Bachelor of Arts; Graduated May 3, 2011 summa cum laude. Major: Environmental Science, Emphasis/Concentration: Environmental Policy
General Note:
College/School: School of Natural Resources and Environment
General Note:
Advisor: Michael T. Olexa

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University of Florida
Holding Location:
University of Florida
Rights Management:
Copyright Richard Bowen. Permission granted to the University of Florida to digitize, archive and distribute this item for non-profit research and educational purposes. Any reuse of this item in excess of fair use or other copyright exemptions requires permission of the copyright holder.

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C ULTIV ATING C ARBON : A N E XPLORATION OF C ARBON M ARKETS AND C ARBON O FFSETS IN THE A GRICULTURAL S ECTOR Prepared by: Richard Bowen Sch ool of Natural Resources and Environment College of Agricultural and Life Sciences University of Florida Supervise d by: Dr. Michael Olexa, Ph.D., J.D. Distinguished Teaching Scholar Professor, Agricultural and Environmental Law Food and Resource Economics Department University of Florida

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Abstract This project explores the growth of carbon markets and carbon offset s, with emphasis on their economic qualities and how they may affect agricultural operations in terms of benefits, opportunities, risks, and costs. Research shows carbon markets and carbon offset s are already in wide use outside the United States, an d suggests domestic implementation will result in rapid expansion of the international market. Research also suggests inadequate verification procedures and problematic approval standards for existing carbon offsets. The agricultural and forestry sectors h ave much opportunity to gain from carbon markets and carbon offsets if a cap and trade proposal emerges in the United States. Most offset projects involve management of soil carbon and forests, but are not available to all farmers and involve risk of seque stration reversal due to unforeseen events. Carbon markets and offsets offer a promising means of controlling greenhouse emissions and creating business opportunities; there exist, however, concerns regarding risks, and opportunities to manipulate or explo it systems currently in place. If additional risk management and verification measures are infeasible and expansion of maintenance staff for carbon markets is impractical more effective greenhouse gas control sy stems such as carbon taxation should repla ce agricultural carbon markets

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Table of Contents 2 Prerequisites for Establishing Carbon Markets Agricultural Carbon Considerations Relative Ability to Participate Credibility and Monitoring Risk Management for Agricultural Carbon Offse Conclusion and Suggestions

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Bowen 1 Introduction On December 15, 2009, the United States Environmental Protection Agency issued an endangerment finding in the Federal Register. Among other things, this rep ort identified carbon elevated concentrations of greenhouse gases in the atmosphere may reasonably be anticipated to endanger the public health and to endanger the public welfare of current and fut ure generations and the implication of carbon dioxide in climate change serve to illustrate why greenhouse gas control policies and solutions are a common topic of discussion. One of the most popular approaches to greenhouse ga s emissions control mechanisms is a and such a system, it is possible to encourage the reformation of individual and group tendencies contributing to climate change, and to provide rewards and opportunities to those people and groups that seek to positively impact the imminent crises posed by climate change. While in most cases it is typically framed as adversarial to environmental efforts, agriculture is a field that can potentially reap benefits from a cap and trade/carbon market system. It is the potential relationship of agriculture to carbon offset s and markets that serves as the focus of this report. The chief purposes of this report include exploring the operat ion and effects of carbon markets and carbon offset s, and delivering a thorough analysis of carbon offset s as they apply to agriculture and forestry in the United States. This report also intends to ultimately determine which parties and entities in agric ulture will likely impact and be impacted through carbon offset s and markets, and in what ways. In so doing, this report seeks to provide a comprehensive overview of carbon markets and what they mean to both the agricultural sector and the United

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Bowen 2 States a s a whole, and offer an interpretation of their current status along with a conclusion and suggestions for the future. Exploring Carbon Markets Due to the novelty of climate policy and associated measures, the characteristics and implications of carbon mar kets and carbon offset s are not well understood. As such, this report will begin with an explanation of carbon markets, carbon offset s, and how they function. What are Carbon Markets? Carbon markets are one of several measures suggested for controlling gr eenhouse gas involve putting a price on and thereby commodifying carbon for carbon taxation, barter in a and et al p. 3). Of these approaches, the United States Congressional Research Service Report [CRS] R40556 (Feb. 26, 2010) identifies the cap and trade approach as and or at least an approach containing cap and trade elements. According to CRS Report R40100 (Dec. 19, 2008): A cap and trade program is based on two premises. First, a set amount of greenhouse gases emitted by human activities can be assimilated by the ecological system without undue harm. Thus the goal of the program is to put a ceiling, or cap, on the total emissions of greenhouse gases. Second, a market in pollution

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Bowen 3 licenses between polluters is the most cost effective means of achieving a given reduction. (p. 16) and trade is th us a limit on carbon emissions, and is meted out to each CO 2 is prov each equivalent to one ton CO 2 equivalent which are used up by the entity through emissions. Entities are not permitted to emit more carbon dioxide than accounted for through allowances; those who exceed their allowances become subject to penalties. and trade refers to the ability of entities to buy and sell allowances on Creating an allowance system is similar to creating a new currency. The a llowance has value that can be converted to cash via a market clearing emissions is prevented, and entities are rewarded or punished based upon their environmental attitudes. Viol ators have incentive to buy their way back into compliance under most cap and trade regimes, including the H.R. 2454: American Clean Energy and Security Act of 2009 (also excess of their allowances must pay twice the market price for every ton CO2e emitted in excess of their allowances (p. 750 751). As such, emissions ultimately translate to expenses for carbon emitting firms. Thus, minimizing emissions becomes desirable entities that emit an amount less than their cap may profit by selling excess allowances to entities with emissions exceeding their caps, or with operations such that restructuring operations to reduce emissions is more expensive than purchasing offsets. Through a cap and trade program,

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Bowen 4 the incentive is for firms to reduce their carbon emissions as much as possible, and efficiency gains take place in industries where it is most economical to implement them. In addit (alternatively known may also be purchased by emitters from third parties that take action to sequester greenhouse gases. It is here, within the market for carbon offsets, where individuals and entities in the field of agriculture can potentially profit from carbon control policy. Prerequisites for Establishing Carbon Markets and Offsets Successfully establishing and maintaining carbon markets requires fulfillment of a number of necessary conditions. First, carbon markets require establishment of baselines for greenhouse gas emitting industries and firms bound by the carbon market. Shapiro (2010) notes for each carbon this baseline then serves as a reference point from which the firm reduces its emissions t o an emissions cap that declines over time (p. 31 32). From its baseline, each firm can determine whether its efforts move toward reduced or increased emissions, and how quickly. Se cond, those drafting the legislation to establish a carbon market must agr ee on a set price or range of prices at which to begin trading emissions offset s. Any legislation that ignores this factor is likely to encounter more fervent opposition, and those firms who would otherwise use a voluntary carbon market might consider it too risky without an established price Giles Parkinson notes in his 15 May 2009 article in The Australian that disestablishing a set carbon price discourages carbon emitters from making any emissions reduction plans, including the purchase of carbon offs et s (FINANCE, p. 29). While the article focuses on Australian carbon

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Bowen 5 demands. The disappearance of a set carbon price would impact carbon offset producers as well: if demand for carbon offsets vanishes as firms leave the market, carbon offset producers risk possessing an unsalable commodity and a fruitless investment. Carbon offset markets also require intermediaries to facilitate the purchase and sale of carbon off sets between offset producers and carbon emitting firms. As offset developers may not have access to communication channels for carbon emitting firms, developers may require better networked agents to advocate and sell offsets on their behalves. Shapiro (2010) notes that international carbon markets already create the need for so (frequently hired by multinational firms) to seek out, advertise, and broker carbon offsets for little known carbon offset developers (p. 32); thus, th e proliferation of carbon markets in the United States necessitates the development of such agents. Some final considerations with regard to risks involve credibility and monitoring. ow the cap and to verify monitoring and verification to determine the truth or falsity regarding the amount of carbon claimed as sequestered. Carbon markets thus require professional monitoring and verification specialists. Shapiro (2010) notes that reductions is relatively straightforward, based on readings from meters installed at regulated power stations and manufacturing faci (p. 32), suggesting that accurately monitoring carbon emitting firms merely requires enough staff to read and document meter readings. Monitoring sequestration by carbon offset projects, however, is potentially more difficult. Potential carbon of fset projects vary widely, producing very different means of monitoring between each project. This variance suggests the need for monitoring staff specializing in each type of offset project.

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Bowen 6 Should Governments Use Carbon Markets? Carbon markets have many attractive characteristics that make them preferable to other carbon control methods. Though formal, mandatory carbon markets do not yet exist in the United States, formal carbon markets operate in other nations namely, those in Europe with a measure of success. In contrast to the voluntary markets of the United States, Mark Shapiro notes in a 2010 European companies buy and trade their credits frequently under parameters established by the European Union A November 2008 report by the United States Government Accountability Office validates this information, market activity in 2007 with a total trade value of approxim ately $63 billion (p. 4 ). In addition to the formal markets overseas, voluntary and informal carbon markets have operated for extended periods within the United States. One such market is the Regional Greenhouse Gas Initiative (RGGI); Craig Roach notes i n a March 2011 Electricity Journal article that the 10 Northeastern and Mid Atlantic states participating in RGGI traded 303 million auctions and produced $777 million in state revenues since 2008 (p. 17). In addition to RGGI is the Chicago Climate Exchan ge which, while currently limited in operations, made up approximately one half of the estimated total global voluntary carbon market trading in 2008 (CRS Research Article R41086 [Feb. 26, 2010], p. 24 ). The existence and functionality of carbon markets s uggests that they have potential as a viable means of carbon control policy. In contrast to the cap and trade approach of carbon markets, another proposal for long re emitters of carbon dioxide to pay a set amount of money per unit of carbon dioxide emitted, thus providing a disincentive for emitters to pollute. CRS Report R40556 (Feb. 26, 2010) notes that whereas the cap and method of controlling GHG

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Bowen 7 the preferable approach is the one that directly controls the preferred variable, quantity or price of emissions (p. 1). Although p rice controls from a carbon tax might provide more accurate economic forecasting for carbon emitting industries the carbon tax is politically unpopular because its status as a tax makes it resemble a policy that actively punishes emitters for their greenh ouse gas emissions. In addition, the price control theoretically established by a carbon tax does not set a specific reduction target for greenhouse gases, which means that a carbon tax may not sequester a sufficiently large amount of atmospheric carbon t o combat global warming. Carbon markets are not without their drawbacks, however. First, the concepts of carbon allowances and carbon offsets are complex and difficult to understand. To even implement the idea of a carbon market, carbon emissions must be come a new commodity. However, carbon trading is different from most typical commodities. While the trade of most commodities involves the visible distribution of physical goods from one area to another, carbon trading is unique in that the carbon marke t is based on the lack of delivery of an invisible substance to no one 33). Due to the intricate and unique nature of carbo n markets, there is potential for logistical problems in their implementation. Current Characteristics of Carbon Markets The only carbon markets currently active in the United States are voluntary markets. Participation in such markets is at the discreti on of carbon emitting firms, and firms that so choose must submit themselves to the guidelines and additional costs imposed by the market itself. Congressional Research Service Report (CRS) R41086 (Feb. 2 6, 2010) notes that design for a cap and and whatever design prevails

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Bowen 8 will inevitably affect the characteristics of carbon markets and their tradable credits/offsets. (p. 6). Until Congress agrees on a cap and trade proposal and puts it into practice, partic ipation in United States carbon markets will remain restricted to voluntary markets. Lack of sufficient oversight is an ongoing issue in carbon offsets trading. The large number of participants in any typical carbon market makes necessary the presence of a large staff of emissions monitoring officials. If the carbon market structure also allows firms to purchase carbon offsets from outside projects, the multitude of potential carbon offset projects requires monitoring to a far greater extent. However, re search indicates that monitoring capability routinely falls short of its required level. Shapiro (2010) notes that the formal international carbon markets established under the Kyoto Protocol rely on only twenty six firms chosen by the United Nations to s disconnected monitoring agencies handle validation of carbon offset projects and the verification of sequestration claims across the globe (p. 32). Finding sufficient monitoring staff t o service each offset project might prove a daunting task. Problems also exist in the voluntary markets of the United States. In reporting on the Regional Greenhouse Gas Initiative (RGGI), Roach (2011) explains that the recent economic downturn means that emissions intensive industries no longer produce the same amount of goods While this news is positive in terms of decreasing carbon emissions, Roach (2011) n otes that industries which emit carbon in amounts less than their caps ultimately have little need to purchase carbon allowances or offsets; this lack of demand translated to a steady decline in market activity throughout 2010 (p. 18). Due to the pervasiv e nature of the recession, other voluntary carbon markets throughout the United States are likely to experience inactivity. In

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Bowen 9 addition, credibility of carbon offsets is a concern among potential offset buyers in voluntary carbon markets A 2005 publicat ion of the Gatekeeper series by Nadaa Taiyab notes typical options for establishing credibility in voluntary markets are costly and complicated. Examples of Standard and the Climate, Community, and Biodiversity Standards. Offset providers that do not become certified are at a disadvantage because buyers may consider uncertified offsets less trustworthy (p. 15). Furthermore, because of limited transparency in carbon o ffset projects buyers may find it difficult to determine how much of the purchase price of carbon offsets goes toward the actual project. As such, b uyers may have reservations about purchasing from the voluntary market (Taiyab [2005], p. 16). In contrast to the declining voluntary markets in the United States, a 2010 Environmental Investing article by Shari Young explains that European carbon markets continue an ongoing trend of growth. Young (2010) notes that the European carbon markets trade at signifi cantly higher volumes and enjoy a compounded annual growth rate of 175%, which Young attributes to 20). In a 17 November 2010 New York Times online news log entry John Collins Rudolf likewise suggests that Europ growth is due to mandatory regulations, such as those installed through the language of the Kyoto Protocol. These accounts appear to suggest that cap and trade carbon markets require strong rules and enforcement to maintain s uccess. Despite the continued operation of carbon markets, recent times cast doubt on the future of carbon trading. A web article published on 7 November 2010 by John Sullivan documents the October 2010 announcement that the CCX would cease trading carbon emissions. Rudolf (2010)

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Bowen 10 the long term viability of most United States carbon markets is question able b ecause of the economic decline. In additi on, the more successful European treaty to replace the Kyoto Protocol is i Young (2010) explains that the Copenhagen Accord could allow for continued carbon trading, but notes that 2012 time period will de Maintaining carbon markets ultimately requires cooperation and consensus on local and international levels. The implementation and maintenance of carbon cap and trade markets are both f raught with pitfalls and obstacles. However, carbon reduction markets could make great strides in reducing carbon emissions if properly constructed and sustained. Multiple industries can contribute to carbon emissions reductions, and agriculture is an in dustry with a substantial degree of potential. Agricultural Carbon Offsets Agriculture has a high capacity for carbon mitigation activities. CRS Report R40236 (Jan. 26, 2010) states that approximately 15% of national annual GHG emissions in the U.S. are s from annual increases in forest stocks (p. 2). There are many available options for agricultural carbon mitigation. Congressional Research Service Report RL3 farmers can engage in a host of different activities to practice carbon sequestration, including

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Bowen 11 till crop management; conversion of cr opland to grass, managed forests, grasslands, and rangelands; new tree plantings; anaerobic digesters and methane projects; wind, solar, or other opportunities f or farmers to generate carbon offsets for sale in a carbon market. Of all of these potential mitigation activities, CRS Report R40236 (Jan. 26, 2010) notes that soil carbon sequestration and conversion of agricultural lands to plant biomass (namely, fores t) are the two most promising agricultural mitigation activities in terms of emissions mitigated (p. 7). Carbon offsets, however, also have multiple risks and considerations associated with them, and these factors are relevant to a comprehensive evaluation of carbon offsets. To assess the viability and suitability of agricultural carbon offsets to the task of carbon mitigation, this report will explore the benefits, considerations, and potential problems of implementing agricultural carbon sequestration sc hemes. The need for specific examples, however, merits a secondary focus on these topics as they relate to the two most promising types of agricultural sequestration projects: 1) soil conservation, and 2) land conversion to plant biomass production. A pr oper evaluation of agricultural carbon offsets first requires an explanation of these types of projects and a showcasing of their ability to mitigate carbon. Soil Carbon Sequestration Preserving and/or increasing carbon sequestered within the soil presents a significant opportunity for greenhouse gas reductions. Because carbon is an integral part of soil organic matter, landowners can mitigate carbon emissions by managing the soil to build and retain soil organic carbon. According to a 2004 Science articl Carbon sequestration implies transferring atmospheric CO2 into long lived pools and storing it securely so i t is not In a December 2003 American Journal of Agricultural Economics article, Paul J. Thomassin e xplains that agricultural lands may be used to sequester

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Bowen 12 carbon, but that carbon markets must first approve soil carbon sequestration for offset production, conventional agricultural practices, such as conventional tillage and summerfallow would have to be replaced by alternative practices, such as zero till. These alternative practices could seque ster carbon from the atmosphere To illustrate the potential of soil for carbon mitigation, Lal (2004) explains that the sheer concentration The soil C pool [2500 Giga tons] is 3.3 times the size of the atmospheric pool (760 Gt) and 4.5 times the size of the bioti c pool (560 Gt) of a threat for producing CO 2 emissions rather than a means of abating them, it also suggests the potential to prevent a large quantity of additional carbon emissions if land use can occur without disrupting soil carbon stocks. Lal (2004) also notes that Conversion of natural to agricultural ecosystems causes depletion of the SOC pool by as much as 60% in soils of temperate regions and 75% or more in cultivated soils of the tropics conversion is a larg e contributor to carbon emissions, but also indicate that agricultural soils stored far more carbon before being cultivated than they do while in cultivation. This information suggests that agricultural soils possess a high capacity for soil organic carbo n, and that agricultural soils can mitigate carbon emissions if they can recapture and retain the carbon they initially released to the atmosphere. Conversion of Agricultural Land The growth and proliferation of plant biomass is a well known and effective means of removing carbon dioxide from the atmosphere A 2009 Environmental Reviews article by Bill Freedman, Graham Stinson, and Paresh Lacoul notes that fixation of CO2 exceeds its release by respiration, resulting i n a net uptake from the atmosphere Because plants sequester carbon in

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Bowen 13 their biomass as they grow, the proliferation of plant biomass results in the removal of carbon dioxide from the atmosphere as it becomes stored within the growing plants. Typically, land conversion for carbon sequestration involves replacing the growing crops with something more et al anthropogenic land use to natural vegetation usually results in a large increase in ecological forest growth in the 1980s ultimately stored 10 to 30 percent of United States carbon dioxide emissions at the time (p. 3) and that organic carbon of soil by 25 59 t C ha 1 (p. 9). Such statements suggest a high capacity fo r plant biomass to mitigate carbon emissions. Benefits of Agricultural Carbon Offsets The largest benefit that people in the agricultural and forestry sector stand to gain from the generation and sale of carbon offset s is income. High potential for soil c arbon sequestration and plant biomass sequestration translates to a high degree of potential revenue for carbon offset producers. According to CRS Report R41086 (Feb. 2 6, 2010), both the U.S. Department of Agriculture and the Environmental Protection Agen cy predict U.S. agriculture would benefit economically from a strong carbon offset market in which agriculturalists could participate (p. 2). CRS Report RL34042 (Dec. 15, 2009) explains that recent carbon control legislation under discussion may allow for agricultural and forestry sectors to generate carbon offset s, and some legislation contains provisions through which farmers may receive direct profits from their sale for the purpose of encouraging technology that reduces greenhouse emissions in those se ctors (p. 7 8). In addition, CRS Report R41086 (Feb. 2 6, 2010) notes that both the United States Department of Agriculture and the United States Environmental Protection Agency claim that

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Bowen 14 opening a strong carbon offset market in which agriculturalists cou ld benefit the agricultural sectors in the United States as a whole, including those farmers who did not participate (p. 2). Some projects, such as soil carbon sequestration, may not require a substantial departure from typical agricultural operations. So me typical recommended management practices cited by including the use of manu 1624), all of which are practices that farmers can use alongside crop cultivation. Farmers practicing soil carbon sequestration can thus still use sequestration land for cropping purpose s, presenting two sources of income from the same parcel of land. Owners of tree plantations may find a similar multiple land use boon in tree carbon sequestration, as timber harvesting has relatively little effect on carbon stored in the soil, except wh ere followed by conversion of the site to an agricultural land use, which may cause a loss of 24% 30% of the soil carbon stocks (Freedman et al [2009], p. 7) Thus, if managed properly, farmers growing trees on their land could generate revenues from car bon sequestration and timber sales. While certain carbon offset projects are more cost effective at a particular price than are others, the large number of available project types suggests that viable offset projects probably exist under most any price lev el. carbon prices, agricultural soil sequestration projects (e.g., conservation tillage practices) are expected to provide the most cost seq uestration as a viable means of generating carbon offset s even under generally less profitable circumstances. Soil carbon sequestration projects are likely more cost effective at lower carbon prices because putting such a project into practice does not re quire the farmer to change the land

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Bowen 15 may become more cost effective, depending on how much more carbon is sequestered per acre compared to soil management practi will determine the types of ca rbon offset projects undertaken. In addition to making money through the generation and sale of carbon offset s, farmers may reap additional operational and economic benefits from carbon sequestration. With regard to soil carbon sequestration, for example, a passage from Lal (2004) notes that the soil organic carbon (SOC) retained and increased through soil carbon sequestration provides vital soil and ecosystem servic es: An optimum level of SOC stock is needed to hold water and nutrients, decrease risks of erosion and degradation, improve soil structure and tilth, and provide energy to soil microorganisms. The SOC is a biomembrane that filters pollutants, reduces sedim ent load in rivers, decreases hypoxia in coastal ecosystems, degrades contaminants, and is a major sink for atmospheric CO 2 and CH 4 (p. 1626) With such a large array of positive effects, farmers might do well to conser ve and concentrate soil carbon simply to preserve th eir croplands and local ecosystems, regardless of whether they intend to sell carbon offsets or not. Lal (2004) also notes that increases in soil carbon concentrations increase the productivity of agricultural soils in both developed and de vel oping countries, regardless of soil quality or agricultural intensity (p. 1626). Because soil carbon is only one component of the organic matter within soils, however, Lal (2004) notes that successful sequestration of carbon within agricultural soils r equires additional nutrient inputs. there are several

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Bowen 16 sources of nutrients for C sequestration, including biological nitrogen fixation, recycling from subsoil, aerial deposition use of biosolids, and crop residues With regard to land conversion, Freedman et al [2009] notes that afforestation efforts can work toward biodiversity preservation if forest managers attempt to bring a deforested area back to a more natural improved water quality downstream and in aquifers and as additional benefits from afforestation projects (p. 11). In his 2002 Environmental Management article, Steven A. Kennett ar gues that maintaining forestry provides a whole host of other, external benefits: examples include preservation of watershed flow regimes, more sustainable forest management practices ( which are required to maintain forestry carbon projects), and conservat ion of biodiversity, habitat, and topsoil (p. 599). If agricultural landowners use their lands for purposes in addition to crop cultivation and/or plant biomass carbon sequestration, these benefits may help the landowners directly. In addition, a 2003 Un iversity of Newcastle report by Kenneth G. Willis et al documents significant local benefits to air quality. According to Willis et al (2003), the forest in a two hectare region of city and forestland in Great Britain provided £199,367 to £11,373,707 in b enefits, and reduced pollution enough to prevent ~59 to 88 deaths and ~40 to 62 hospital visits (p. 24). Because people outside farms and tree plantations may enjoy many of the benefits created b y carbon offset programs, it may be desirable for citizens an d governments to encourage the continued production of those benefits. However, if the farmers do not enjoy some of these benefits themselves, they may have little incentive to continue producing them if the benefits they do enjoy are not significant enou gh. As such, outside forces may need to incentivize the constant practic e of benefit producing processes; this incentive would most likely come in the

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Bowen 17 form of direct payment A 2006 Agroforestry Systems article by Felicity Flugge and Amir Abadi suggests t hat governments might provide payments to practitioners of agroforestry to maintain these positive externalities (p. 190). However, there is debate regarding how to evaluate a proper payment amount for each environmental service. Considerations and Risks Associated with Agricultural Carbon Offsets Discussing carbon offset s and markets in an agricultural context requires consideration of several factors, including the ability to produce carbon offsets, the timeframe demanded from carbon offset production, a nd trustworthiness involved in carbon offset production. Agricultural carbon offset producers also must account for potential risks in producing carbon offsets, specifically if the carbon actually sequestered is in a smaller amount than initially believed This portion of the report examines each of these factors in detail. Relative Ability to Participate One concern arising from agricultural carbon offset production is that certain farmers and landowners may be better suited to generate carbon offsets th an others. Evidence points in multiple directions, however, as to which farmers are best suited to participate in carbon offset markets. For example, CRS Report R41086 (Feb. 2 6, 2010) states that larger scale farms and landowners will likely enjoy econom ies of scale and transaction costs lower than those of smaller landowners or farming operations (p. 20). The report also mentions that larger operations also have greater land holdings, making it possible to set aside large tracts of land for carbon seque stration activities while retaining enough land to practice other agr icultural activities (p. 21). The larger size of these farms may grant their owners more autonomy as well: a 2003 American Journal of Agricultural Economics article by Paul J. Thomassin explains that farmers who can set up their own individual offset projects have more flexibility in project design (p. 1667). However, each individual producer of carbon offsets most likely creates offsets in a

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Bowen 18 quantity too small to serve the emission redu ction needs of a carbon emitting firm. As a result, [2003], p. 1776). However large scale farmers that can sequester carbon and produce offsets in bulk might reach a large enough aggregate with fewer consolidations, making it ea sier for them to sell their carbon offsets. Despite the comparative advantages of large scale farmers, small farmers may still find ways to participate in carbon markets. Indeed, though the Chicago Climate Exchange (CCX) longer operates at its former capac ity, CRS Report R41086 (Feb. 26, 2010) notes that to the individual offse t project design, Thomassin (2003) also notes that there exist pooled offset programs that may better serve the needs of small farmers. According to Thomassin [2003], pooled offset program enrolls multiple farmers in offset production according to a commu nal set of guidelines and restrictions. While the pooled offset program restricts freedom of project operating costs: the costs of monitoring, measurement, a nd accreditation only apply to the project guidelines as a whole and not for each individual member of the offset pool (p. 1667). This approach has an advantage over individual carbon offset projects, which involve higher costs associated with the individ ual undertaking of measuring, monitoring, and accreditation procedures (Thomassin [2003], p. 1667). Ultimately, the approach that best serves an offset a producer endowed with substantial

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Bowen 19 land and resourc es may choose the individual method for its flexibility, while the pooled approach may give smaller farmers greater opportunities for participation. Finally, whether or not the farmer actually owns the land also factors into eligibility for agricultural ca rbon offset production Agricultural carbon offset projects require substantial time commitments in order for offset producers to achieve projected sequestration. CRS Report R41086 (Feb. 26, 2010) found that offset production contracts with periods of 10 to 15 years or more prevent farmers with shorter lease periods from fulfill ing the obligations of offset projects This disadvantage restricts participation to farmers who own their land or can lease for extended periods (p. 17). Initially, it might appe ar that extending availability to these groups simply requires shorter term offset contracts; however, the CRS report indicates that shorter timeframes raise concerns about credibility and permanence of sequestered carbon (CRS Report R41086 [Feb. 2 6, 2010] p. 17). With respect to land leases, CRS Report R41086 (Feb. 26, 2010) also determined that lease agreements involving carbon offset production on the leased land are often more complicated than typical lease agreements. These added complexities exist to ensure that lessees maintain carbon sequestration activities, so that any carbon offsets investments tied to that land remain stable. Unfortunately, these additional stipulations may discourage prospective carbon offset participants from engaging in ca rbon offset projects effectively restricting offset production activities to landowning farmers (p. 17 18). Making carbon offset participation desirable to more farmers may thus require revision of land property considerations under certain circumstances Accreditation Similar to the monitoring requirements imposed on carbon emitting firms to ensure that they make reductions in carbon emissions, monitoring becomes necessary for each and every

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Bowen 20 carbon offset program to ensure that projects actually produce the expected sequestration. Before an offset producer can even begin to produce salable offsets, the producer must prove to carbon market administrators that the project can produce valid offsets. A ccreditation typically involves a demonstration of the p it in accordance with particular guidelines and prerequisites. If the offset producer can prove the P erhaps the most important and integral of accreditation prerequisites is a requirement called additionality A 2001 Climatic Change article by Gregg Marland, Bruce McCarl, and Uwe Schneider explains that for a carbon offset project to possess additionalit y, the project must sequester carbon above a specific baseline, which is set at the amount of carbon that the area would sequester in the absence of the sequestration process (p. 105). Thus, a project possessing additionality meets the main purpose of a c arbon sequestration project: reducing total carbon emissions and mitigating the negative effects of global warming in doing so. Specifically, project actual ly leads to increased sequestration of atmospheric carbon. Thus, in order to create marketable offsets, the offset producer must create a new project with its main purpose being the generation of carbon offsets a sequestration process that the prospective offset producer practices anyway is ineligible for accreditation. Taiyab [2005] notes that proving additionality is important to producing credible carbon offset projects because baseline the estimated greenhouse gases emitted in the absence of the project is critical to Additionality can thus also measure the effectiveness of a carbon offset project by showing how much carbon the project sequesters.

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Bowen 21 Credibility and Monitoring Even after a carbon offset producer proves the additionality of a carbon offset project, constant monitoring becomes necessary to measure the amount of sequestration performed by the offset project. Carbon sequestration is a long term proc ess involving unpredictable natural actual amounts sequestered at the end of the project term. Freedman et al [2009] suggests that offset producers seeking (1) identify or create a quantification protocol, (2) register, (3) report and verify emission reductions or offsets, and (4) ; under these requirements, an offset producer must first sequester carbon to sell carbon offsets. Shapiro [2010] explains, however, that carbon offset producers in markets established under the Kyoto Protocol can typically sell offsets soon after the accreditation of a project, despite no significant degree of carbon sequestration actually occurring. Carbon offset producers in these markets typically sell their offsets immediately and in quantities according to estimated sequestration; however, neither the offset pro ducer nor the buyer will know the true amount of carbon sequestered until the end of the sequestration period (Shapiro [2010], p. 33). That offset producers can sell their offsets before delivering agreed upon carbon sequestration also raises a concern re garding the credibility of offset projects. Marland et al (2001) suggests that unless there are either incentives for offset project maintenance (e.g. long term subsidies) or a large number of external project monitors, carbon offset producers might aband on their offset programs after selling their offset s (p. 107 108). To ensure that carbon projects remain in practice and meet their projected sequestration goals, constant monitoring of offset projects is necessary to ensure that they are eeting projected sequestration totals.

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Bowen 22 Another consideration involved in offset project monitoring is that monitoring techniques differ drastically between offset projects. CRS Report R41086 (Feb. 26, 2010) notes, for example, that monitoring of soil carb on sequestration probably requires annual analysis of soil samples from multiple areas, whereas monitoring of plant biomass sequestration likely only requires monitoring of above ground plant biomass every five years (p. 23). Also, carbon sequestration pr ojects of the same type may have different monitoring characteristics and conditions due to different project scopes and sequestration periods. To address these differences, CRS Report RL34042 (December 15, 2009) notes the demands of recent United States farm bills for the consistent agricultural sequestration project (p. 8). The farm bills also suggest the inadequacy of existing practices to measure offset credibility, despite their inclusion as applicable offset s for sale in many cap and trade systems ( CRS Report RL34042 [Dec. 15, 2009], p. 8). A final consideration regarding monitoring deals with limited sequestration capacity in agricultural offset projects. As an offset project sequesters carbon, the rate of carbon sequestration eventually declines a s the carbon storage reservoir approaches its full capacity. Thus, it is necessary for the farmer engaging in soil carbon sequestration to monitor the rate of carbon sequestration and to both anticipate and prepare for when soil carbon concentrations appr oach the upper limit. This process explains why undisturbed soils and old growth forests sequester little additional carbon, but already contain high concentrations of stored carbon. Lal (2004) illustrates upper limits to soil carbon reservoirs through s oil carbon sequestration: while agricultural soils historically held stocks of soil carbon at levels much higher than their cultivation levels, recommended management practices usually only achieve ~50 66% of the cultivation carbon stocks at max imum (p. 1623 1624). As an offset project

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Bowen 23 experiences declining rates of sequestration, the offset producer must thus factor this slow down into future carbon sequestration estimates. Permanence Permanence refers to the storage of carbon sequestered by a carbon offset project for an indefinite period of time. To protect the credibility of their projects and any sold offsets, agricultural carbon offset producers must maintain permanence by ensuring that sequestered carbon remains locked in storage througho ut the course of the project period. If carbon sequestered by an offset project somehow escapes to the atmosphere, the offset producer may end up with less sequestered carbon than expected by the end of the project. Because of the long operation periods associated with carbon offset projects, protecting the permanence of carbon stocks is an ongoing concern. In many offset projects, non permanence can happen quickly and easily. In studying soil carbon sequestration projects, for example, Lal (2004) expl remains in the soil as long as restorative land use, no (p. 1625). However, the disruption or abandonment of soil carbon management practices risks disturbing sequestered soil carbo n and thus invalidating any associated carbon offsets on the market. Farmers must thus be careful to constantly maintain soil carbon conservation practices or else potentially lose their investment. If land ownership rights transfer from one farmer to an other, Marland (2001) notes that liability for carbon reversal may become problematic because Leasing arrangements may also create obstacles. Contract terms a nd liability for discontinuing carbon

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Bowen 24 Non permanence may also occur through circumstances which the offset producer has relatively little control over. With regard to plant biomass projects, a 2009 Fo rest Ecology and Management article by Christopher S. Galik and Robert B. Jackson explains that natural disturbances as windthrow, ice storms, drought, wildfires, and insects have the capability to do serious and lasting damage to forestry stands (p. 2210 2211). Out of all of such risks for carbon stock reversal, Galik and Jackson (2009) identifies insect outbreaks as the most threatening (p. 2210), and also notes that insect outbreaks are likely to worsen from climate related expand the range and time per iod in which destructive insects are viable in a given year (p. 2211). CRS Article R41086 (Feb. 26, 2010) also notes that the risk involved for those engaging in forestry based carbon sequestration activities is relatively higher than for farmers who choo se to keep their land in crop production, as planting trees and sequestering of carbon through those trees represents a longer term investment (p. 12). Carbon offset producers may need risk management strategies in the event of an unavoidable carbon rever sal. Finally, carbon offset producers must remain aware that small scale carbon reversals may occur simply from the processes involved with the project. In soil carbon sequestration projects, landowners may lose soil organic carbon sequestered in agricult ural soils through soil erosion. Lal (2004) notes that that while some of this eroded carbon rich soil may become stored in soils elsewhere, much of its carbon returns to the atmosphere and counts against projected carbon sequestrations for the farmer (p. 1624 1625). While the farmer cannot completely protect agricultural soils from erosion, the farmer can nevertheless engage in appropriate recommended management practices to minimize erosion for both carbon sequestration and general soil health purposes. important to also account for potential carbon emissions due to agricultural production on that soil. Lal (2004)

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Bowen 25 mentions that most agricultural practices, including recommended manage ment practices, require inputs that contain carbon as a main component (p. 1624). While CRS Report RL34042 (December 15, 2009) notes that agricultural sectors of the economy are not subject to cap and trade regulations under current legislation (p. 7), th e emissions that result from agricultural ope rations might count against carbon sequestration in that area As a matter of liability avoidance and credibility, the soil carbon sequestration farmer must count the tons CO 2 e released into the atmosphere agai nst the tons CO 2 e sequ estered by the farmland soils. In plant biomass carbon sequestration projects, dead and decaying plant matter may ultimately release sequestered carbon back to the atmosphere. Freedman et al (2009) notes that tree litter in forests c onstantly releases carbon to the air over extended periods of time (p. 56), which may produce small but measurable reductions in total carbon sequestration. If forest sequestration projects also provide a source of salable timber, project managers should note that assumes that carbon releases from machinery and log transport for felling operations in the UK are 1.25% of carbon sequestrated, and transpire entirely during et al [2003], p. 21) Throughout the course of the project, offset producers must account for these Leakage Another important considerati on in terms of risk to agricultural and/or forestry offset Climatic Change article by Felipe Garca Oliva and decrease or increase in carbon benefits which occurs outside the project boundary, and which is measurable and attributable to the project discussed in a negative context.

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Bowen 26 The leakage that results from conversio n of natural lands to agriculture poses a problem for carbon mitigation Freedman et al ecosystems are converted into agricultural or urbanized lands, large emissions of CO2 result p. 2). Deforestatio n in particular releases substantial amounts of carbon to the atmosphere. Indeed, CRS Article R40236 (Jan. 26, 2010) states that the largest source of carbon sequestration in an amount that dwarfs that of any other type of carbon mitigation activity comes from simply preventing deforestation (p. 4). As such, carbon market administrators must take steps to prevent carbon leakage from deforestation, which can rapidly undo sequestration from afforestation projects. Leakage becomes a concern in agricultural c arbon offset production when landowners convert agricultural land to other purposes, typically because of the societal importance of food. If enough farmers decide to convert cropland to other plant biomass for carbon sequestration purposes, other potenti al concerns may arise from high levels of farmland conversion. CRS Report 41086 (Feb. 26, 2010) notes that large scale conversion of cropland to other uses may reduce the supply of available food, which in turn may raise food prices (p. 8). If food produc tion capacity declines substantially or if food prices rise dramatically, the demand for food production may induce either intensified agricultural production on remaining farmland, or conversion of land for agriculture. Research suggests a high likelihoo d for carbon leakage in the event of large scale adoption of plant biomass sequestration. CRS Report R41086 (Feb. 26, 2010) notes that if agricultural afforestation can produce salable offsets at the relatively low price of $15 per metric ton CO 2 equivale nt, the EPA and USDA project that anywhere from 60 to 65 million acres of agricultural land would convert to forest by 2050 (p. 9 10). The large scale conversion

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Bowen 27 of farmland to forestland may thus create the opposite trend in areas outside the boundaries of carbon offset projects. Risk Management for Agricultural Carbon Offsets Given the multiple sources of risk and liability associated with agricultural carbon offsets, farmers need effective means of securing themselves and their investments. Carbon offs et buyers may also risk investment loss due to of the possibilities of non permanence, leakage, inaccuracy, or even fraud with respect to carbon offset projects. Ultimately, a discrepancy between what is and what should be begs the question of who is resp onsible for the loss. Garca Oliva and Masera (2004) note that in order to rectify this issue, the United Nations Framework Convention on Climate Change suggested a number of proposals, including unambiguous definition o f liability in case of reversal and establishment of effective risk management plans to protect against damages (p. 352). This portion of the report will explore several implementations of these options. Risk Management through Project Design Thomassin (2003) discusses multiple different p ossibilities for risk management programs in carbon offset production programs in Canada, each of which has its own implications as to which parties would or could bear liability in the case that the offset s from the offset producer are invalid. The first of such proposals is the adoption of a risk management plan insure against management into their project designs by anticipating potential threats and taking precautionary measures. As an example, Galik and Jackson (2009) note that bec ause sellers of forestry based sequestration projects bear liability for offset s invalidated through non permanence, they suggest

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Bowen 28 by increasing frequency of forestry rotations and by spacing individual trees farther apart (though such practices may in turn reduce the amount of carbon sequestered). As a result, Galik and Jackson (2009) also suggests that forestry offset producers who practice risk management activities might be rewarded for being proactive in preventing sequestration reversals (p. 2213). Another example risk management by project design is the pooled carbon offset project. The multiple farmers participating in a pooled carbon offset project can reduce their own individual risk and loss potential by pooling and sharing it with the other participants. The pooled approach thus minimizes any loss an individual farmer might suffer from carbon reversal (Thomassin [2003], p. 1176). The pooled carb on offset approach allows smaller farmers greater opportunities to participate in carbon offset markets, and the ability to pool risk for minimal damage may prove best suited for small farmers because their limited assets make any investment losses more di fficult to bear. Offset System Risk Management Other strategies manage risk through their allowance a nd distribution of offset s. One such p roposal is offset amount is withheld at the begi nning as protection against non permanence and is distributed later after a set time period ( Thomassin [2003] p. 1174). In the event that a carbon offset project sequesters less than the projected or promised amount, the offset producer never receives pay ment for the reserve offset s; this method thus provides great incentive for carbon offset producers to properly monitor and maintain their sequestration projects.

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Bowen 29 Another proposal simply demands replacement of offset offset s in the event of a carbon revers al placing liability solely on the seller (Thomassin [2003], p. 1174). The 2003 HWWA Discussion Paper Number 235 by Jenny Wong and Michael Dutschke provides an example of this proposal in the form of a Canadian offset strategy According to Wong and Duts chke (2003), Canadian system carbon offsets that become invalid are wiped from the record within 15 days, and replaced at expense of the offset provider within 120 days (p. 10). Provided that the offset producer properly manages the offset project from it s inception, replacing the invalid offsets should not pose an impossible challenge; furthermore, carbon emitting firms can invest with A final proposal discussed by Thomassin (2003) involves te mporary validation for offse ts buyers and sellers to evaluate their busines s operations to determine how to proceed. Buyers can determine whether they need to reduce emissions or simply purchase more offset s (whether permanent or temporary), and the limited timeframe for validating temporary offsets allows sellers to determine w hether or not their offset projects need to undergo changes in operation or continue at all (p. 1174). The May 2003 HWWA Discussion Paper Number 227 by Michael Dutschke and Bernhard Schlamadinger notes, however, that temporary offset s may not offer a last ing reduction in greenhouse gas emissions (p. 1); the ephemeral nature of these offset s may thus discourage carbon emitting firms from purchasing them. Lastly, Marland et al [2001] documents a Canadian proposal to address monitoring imprecision: offer a me asure of certainty with regard to a set quantity of carbon offsets. The higher the degree of certainty desired, the lower the quantity of carbon offsets that the farmer can

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Bowen 30 sell (p. 104). While this measure ultimately limits the number of offsets that a carbon offset producer can sell, it allows the producer to sell the smaller amount with more confidence; this measure also allows the buyer to gauge the safety of a particular offset investment. Buffers In order to keep a supply of replacement offset s on h and in case of a permanence disrupting event, a farmer may deliberately market only a portion of available carbon offsets; the remaining unsold offset s could act as a buffer against disruptions. With a large enough buffer, a carbon offset producer can mak e good on a promised amount of emissions even in the event of a carbon reversal. According to Galik and Jackson (2009), buffer programs are already in place in existing carbon markets: the Voluntary Carbon Standard demands a buffer payment in proportion t o the risk of the offset project, and other markets such as the now defunct Chicago Climate Exchange demand contribution to a buffer pool no matter what type of offset program the producer engages in (p. 2213). Market wide buffer programs thus lend offset producers a degree of security against carbon reversal risk by providing a communal offset pool from which they may draw during a non permanence event. Insurance One particular proposal by Thomassin (2003) involves the purchase of insurance by the offset provider. Instead of the offset producer bearing full liability for a carbon reversal event, a carbon reversal insurance policy imposes liability on the insurer and encourages the offset provider to manage risk in order to cut insurance costs (p. 1174). This proposal assumes that adequate carbon offset insurance exists for the offset provider to purchase Wong and Dutschke (2003) notes that there exist only a few specialized insurance companies offering coverage for forestry endeavors, and that only a few developed countries (and these few do not include the

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Bowen 31 United States) have much familiarity with insuring forestry (p. 5). Wong and Dutschke (2003) also note that there are added layers of complexity and risk associated with afforestation and reforestation projects especially in developing countries with respect to unanticipated human disturbances tied to population growth and timber demand (p. 6). On the other hand, if risk management policies follow the Canadian model explored by Wong and Dutschke (2003) then insurance becomes a requirement for any offset project to receive validation and verification by a designated operational entity (p. 9). Regardless of what happens, insurance is a promising means of risk management if carbon insurance companies bec ome more prolific. Interpretation Agricultural carbon sequestration presents an opportunity to mitigate large amounts of carbon. Because biological processes accomplish this feat, most offset programs need little maintenance or infrastructure apart from t hat necessary to manage the physical stability of the area. The revenues from carbon offset sales can also support investment in improved agriculture, and agricultural carbon sequestration projects produce positive externalities that can increase the prod uctivity and health of local areas. Despite these boons, t here remains a great deal of uncertainty regarding carbon markets and carbon offset programs. First of all, because a carbon market must exist before carbon trading can even occur, the first step t oward establishing a functioning carbon market is to draft and then approve legislation providing for the guidelines, rules, and regulations for market operations. Such factors include baselines, initial allocations of allowances, initial trade pricing, a nd eligibility for carbon offsets to count toward caps. Indeed, CRS Report R41086 (Feb. 26, 2010) explains that any participating sector will substantially affect the availability an d cost of offsets as well as the

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Bowen 32 Successful passage of cap and trade legislation, however, requires both a consensus and a willingness to participate on the behalf of multiple large and varying entities, including politicia ns and political leaders, interest groups, affected industries, and the general public. Furthermore, conflict and obstructionism often characterize the present political climate of the United States, so the ability of all concerned parties to agree on a c ap and trade proposal is debatable. Provided that cap and trade legislation passes with a provision allowing the trade of carbon offsets, market administrators may set about establishing guidelines for eligible carbon offset projects. In order for the a gricultural sector to participate in the carbon offset market, the market administration must deem agricultural carbon offsets an appropriate means of generating carbon offsets. Agricultural carbon offsets could greatly benefit United States agriculture; the large number of risks involved, however especially risks of non permanence and subsequent liability could easily cause administrators to rule against agricultural carbon offsets. Ultimately, the strength of carbon market regulations may help administr ation determine whether to support or oppose the sale of agricultural carbon offsets, as strong regulations may help reduce the likelihood of reversal events by requiring stronger safeguards on offset projects. Even if agriculture becomes a viable offset p roducing industry in the carbon market, whether or not farmers will actually engage in carbon sequestration projects is uncertain. The capacity for multiple uses of the same land presents a strong incentive, but so me farmers may avoid agricultural carbon offset projects due to the long sequestration periods involved. CRS Report R41086 (Feb. 2 6, 2010) also notes multiple different deterrents to farmers making the changes necessary to participate in carbon offset markets, and some of these reasons may not b e economic in nature. Cited reasons for offset project resistance include the desire to maintain a

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Bowen 33 farming lifestyle, use of the farm for additional income, passage of farmland to future generations, farmland serving as homeland, apprehension of participat ory risk in a new market, forfeiture of government farm benefits, and high transaction costs in carbon markets (p. 7 8). Undertaking some carbon offset projects may also impose significant changes in land use practices; CRS Report R41086 (Feb. 26, 2010) n substantially alters the day to day, on the ground practices of the landowner, and requires a which may repel some potential offset producers In addition, because must outweigh the opportunity cost of any land use activity the farmer abandons f or sequestration purposes. Some carbon offset programs would not require farmers to forsake their lands or ways of life, but the consideration nevertheless remains an important one. Establishing credibility is also an issue, particularly through the integ ral requirement of additionality. While the concept of additionality is logical in striving for increased carbon dioxide sequestration, determining the baseline to establish additionality may be an issue. Under some circumstances, it is unclear as to whe ther a project that could sequester carbon is doing so mainly for that reason. For example, a November 2007 publication by G. Cornelis van Kooten, Susanna Laaksonen Craig, and Yichuan Wang questions the additionality of soil carbon sequestration practices as farmers may implement them simply to improve soil fertility and limit expenses instead of mitigating greenhouse gases (p. 2). As such, it is debatable as to whether or not the project managers would still practice the project without carbon offset pr oduction. It is the process [of determining additionality] is fraught with obstacles of definition, involving as it does a

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Bowen 34 conceptual leap into the future mong different project types, CRS Report RL34241 (May 7, 2009) notes that evaluating additionality for each individual project is problematic due to differing standards and values between projects (p. 4 ). The question arises as to whether offset producers should receive payment for any sequestration project regardless of intent, especially when considering that many offset projects produce additional benefits that can improve both society and the well being of the project producers. Even when a project bec omes accredited, there is the question of whether there is sufficient monitoring and oversight. CRS Article R40236 (Jan. 26, 2010) notes that carbon offsets from many agricultural sequestration programs may already prove difficult to verify (p. 4). Shapi ro (2010) notes that the monitoring and accreditation needs of the current number of European offset projects already call for a substantial oversight staff with inordinately large maintenance requirements (p. 38). However, a lack of sufficient oversight also means that verestimating reductions is the trapdoor in the offset system. Study after study has demonstrated that CDMs have not delivered the promised amount of emissions reductions (Shapiro [2010], p. 34). If the current international carbon mark ets do not possess enough monitoring staff to accurately compare offset projections to actual sequestrations, the emergence of a formal United States carbon market from the current informal structure has little chance of possessing sufficient monitoring st aff to address its needs. Successfully addressing the budding offset accreditation and validation firms, with multiple firms of both types situated in every reg ion seeking to practice agricultural carbon sequestration. The need for sufficient monitoring may represent a significant economic opportunity in creating a new legion of occupational positions; however, the benefits from this increased economic activity must exceed the

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Bowen 35 operational and administrative costs involved with managing such monitoring firms. Ultimately, the need for sufficient monitoring is difficult to understand and address. There is no reason for monitoring staff without an established carbo n market, and yet carbon offsets will remain a risky and impractical investment without monitoring to ensure their validity. Conclusion and Suggestions While agricultural carbon offsets present a unique and important opportunity to incentivize carbon mit igation in a massive industry, too many loose ends remain unaddressed to safely allow such a scheme to proceed. The cap and trade legislation necessary to create a carbon market remains both theoretical and controversial, and operating a carbon market eff iciently and effectively requires monitoring capacity that simply does not exist at the moment. Drafting comprehensive carbon cap and trade legislation requires a degree of consensus and political will that is noticeably absent in the present day climate of the United States; efforts toward a cap and trade system must first begin by fostering compromise and agreement among political officials. To lay the groundwork for a functional carbon market, a diverse and growing field of carbon monitoring must also emerge to address the multiple types of carbon emitting firms and carbon sequestration activities available. There is also a noticeable lack of available research regarding the specific benefits of agricultural carbon sequestration. Many articles reviewed throughout this report either focused on drawbacks and points of controversy associated with agricultural carbon offset programs, or echoed the same sparse list of potential gains. The study of benefit opportunities from agricultural carbon sequestration could help promote its establishment as a means of mitigating greenhouse gas emissions. Agricultural carbon sequestration activity could also increase through finding means of compensating individuals for associated benefits.

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Bowen 36 Finally, multiple barriers e xist to entering agricultural offset markets and profiting from offset sales. Offset program requirements such as time constraints, land tenure, and accreditation requirements restrict the pool of available offset producers. Where possible and without sa crificing program efficiency, carbon market administrators should endeavor to negate as many impediments to eligibility as possible. Agricultural carbon offsets remain a complicated but viable means of reducing the atmospheric concentration of carbon dioxi de. If additional research can address these considerations, the agricultural sector may yet play a major role in mitigating greenhouse gas emissions and combating the threat of global warming.

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LITERATURE CITED Bastianin, Andrea, Alice Favero, & Emanuele Investments and Financial Flows Induced by Climate Mitigation Policies Mattei 2010.013 Note Di Lavoro. Accessible at FEEM: http://www.feem.it/getpage.aspx?id=2776&sez=Publications&padre=73 Dutschke, M Hamburg Institute of International Economics, May 2003. Print. Freedman, Bill, Graham Stinson, and Paresh La Environmental Reviews 17 (2009): p. 1 19. Forest Ecology and Management 257 (2009): 2 209 2216. Print. Garca Oliva, Felipe & Omar R. Masera. Carbon Sequestration in Land Use, Land Use Change, and Forestry (LULUCF) Projects Under the Kyoto Protocol Climatic Change 65 (2004): 347 364 Prin t. Office: Report to Congressional Requesters GAO 08 1048. ational Policies for Biosphere Greenhouse Gas Management: Issues and 608. Print. Science 304.5677 (2004): 1623 1627. Print. Climatic Change 51 (2001): p. 101 117. Print.

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Published Accessed 29 March 2011 at < http://energydeals.wordpress.com/2011/02/03/carbon trade ends on quiet death of chicago climate exchange/ >. Published 7 Nove mber 2010. Internet. 29. Print. The Electricity Journal 24.2 (March 2011): p. 16 26. Rudolf, John Collins and < http://green.blogs.nytimes.com/2010/11/17/climate futures exchange calls it quits/ >. P ublished 17 November 2010. Internet. Magazine February 2010: 31 39. Print. Taiyab, Nadaa. Gatekeeper Series, for London: International Institute for Environment and Development, 2005. American Journal of Agricultural Economics 85.5, Proceedi ngs Issue (December 2003): 1171 1177. Print. U.S. Congressional Research Service. Larry Parker & John Blodgett.

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Estimates of Carbon Mitigation Potential from Agricultural and Fore stry Activities (R40236; Jan. 26, 2010) by Rene Johnson, Jonathan L. Ramseur, & Ross W. Gorte. Market Based Greenhouse Gas Control: Selected Proposals in the 111 th Congress (R40556; Feb. 26, 2010), by Jonathan L. Ramseur, Larry Parker, & Brent D. Yacobucc i. Potential Implications of a Carbon Offset Program to Farmers and Landowners. (R41086; Feb. 26, 2010) by Rene Johnson, Jonathan L. Ramseur, Ross W. Gorte, & Megan Stubbs. Provisions Supporting Ecosystem Services Markets in U.S. Farm Bill Legislation. (R L34042; Dec. 15, 2009) by Rene Johnson. Voluntary Carbon Offsets: Overview and Assessment (RL34241; May 7, 2009), by Jonathan L. Ramseur. Findings Under Section 202(a) of Federal Register 40 CFR (Dec. 15, 2009): 66496 66546. United States House of Representatives. 2009. American Clean Energy and Security Act of 2009 111 th Congress, 1 st Session, H.R. 2454. Willis, Kenneth G., Guy Garrod, Ric cardo Scarpa, Neil Powe, Andrew Lovett, Ian J. Bateman, Nick Hanley, and Douglas C. Macmillan Forestry Phase 2: The Social and Environmental Benefits of Forests in Great Britain Edinburgh: University of Newcastle Ce ntre for Research in Environmental Appraisal & Management June 2003.

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Insured? Consideration of some Technical and Practical Issues of Insuring Carbon Credits from Afforesta tion and Reforestation International Economics, June 2003. Available at SSRN: or . J ournal of Environmental Investing 1.2 (2010): p. 7 28.


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