Carbon Markets: A Potential
Source of Income to Farmers
Southern Region Agricultural
Outlook Conference
September 23, 2008
Luis A. Ribera
Assistant Professor & Extension Economist
Carbon Sequestration
•Carbon sequestration can be defined as the
capture and secure storage of carbon that would
otherwise be emitted to or remain in the
atmosphere.
•What are Carbon Credits? Two ideas:
•Prevention/reduction of carbon emissions
produced by human activities from reaching the
atmosphere by capturing and diverting them to
secure storage.
•Removal of carbon from the atmosphere by
various means and securely storing it.
Agriculture’s Role…
•It is estimated that U.S. agriculture could
sequester 275 - 900 million tons of carbon dioxide
annually.
•Dr. Richard Sandor (CCX Founder) estimated
future value of agricultural offsets at up to $20
Billion annually
•Agriculture could be the “bridge” to climate
stabilization in the coming years at a much cheaper
cost than some of the big technology ideas like
underground or ocean storage.
Chicago Climate Exchange - CCX
•The CCX was launched in 2003
•Trading operation that is based on a voluntary, but
legally binding association of a number of emitters
and offset suppliers.
•The commodity traded at the CCX is the Carbon
Financial Instrument (CFI), each of which
represents 100 tonnes of CO2e.
•The volume traded on the CCX in the first quarter
of 2008 was about 25 million tonnes of CO2e or
annually around 100 million tonnes.
CCX – Carbon Financial Instrument
Price forecasts for US carbon credits
Chicago Climate Exchange - CCX
•Four types of eligible offset projects
•Soil Offsets
•Rangeland Offsets
•Forestry Offsets
•Methane Offsets
CCX – Conservation Tillage
•Conservation Tillage
•Minimum contract size 10,000 tonnes from a
group of farms so need around 20,000 acres
•Aggregator is like the county elevator
•Minimum 5 yr commitment of min till – no
history
•At least 2/3 of soil undisturbed and at least 2/3
of residue on the soil surface must remain
•Farms must have at least 250 acres
•No commitment after contract expires
•Cropland converted to permanent grass (after
Jan 1, 1999.)
CCX – Conservation Tillage
CCX – Permanent Grassland
CCX - Rangeland
•Rangeland
•Non degraded rangeland to increase CO2
sequestration through grazing land
management
•Follow NRCS Guidelines on stocking rates
and managing harvest of vegetation with
grazing animals
•Restoration of previously degraded
rangeland
•Must take place on rangeland with avg. rain
between 14” to 40”
CCX – Rangeland Management
Example on Cons. Tillage Contract (2,500 ac)
• Assumptions:
–
–
–
–
–
–
–
Rate of Absorption: 0.4 Mton/Year
Price $6/Mton/Year
Aggregator Charge: 10% of market price
Verification Fee: $0.12/credit
Registration Fee: $0.15/credit
Trading Fee: $0.05/credit
Retention: 20% of total offset each year
• Sources:
– http://www.chicagoclimatex.com/
– http://www.agragate.com/
Example on Cons. Tillage Contract (2,500 ac)
Market Price (/tonne)
$6.00
Aggregator Fee (/tonne)
Verification Fee (/tonne)
Registration Fee (/tonne)
Trading Fee (/tonne)
Total Fees (/tonne)
$0.60
$0.12
$0.15
$0.05
$0.92
Actual Price (/tonne)
$5.08
Acreage
Rate of Sequestration (tonnes/yr)
2,500
0.4
Year
Carbon Abs (tonne)
Retention (20%) (tonne)
Carbon - Retention (tonne)
Retention Released (tonne)
Net Returns
Average Net Returns
Total Net Returns (5 yrs)
1
2
3
4
5
1,000
200
1,000
200
1,000
200
1,000
200
1,000
200
800
800
800
800
800
1,000
$4,064
$4,064
$4,064
$4,064
$9,144
$5,080
$25,400
Sensitivity Analysis
Sequestration
Carbon Price
Rate
($/tonne)
(tonnes/ac)
$2.00
$4.00
$6.00
$10.00
$15.00
$25.00
$35.00
$45.00
0.12
$0.18
$0.39
$0.61
$1.04
$1.58
$2.66
$3.74
$4.82
0.16
$0.24
$0.52
$0.81
$1.39
$2.11
$3.55
$4.99
$6.43
0.20
$0.30
$0.66
$1.02
$1.74
$2.64
$4.44
$6.24
$8.04
0.24
$0.36
$0.79
$1.22
$2.08
$3.16
$5.32
$7.48
$9.64
0.27
$0.40
$0.89
$1.37
$2.34
$3.56
$5.99
$8.42
$10.85
0.28
$0.41
$0.92
$1.42
$2.43
$3.69
$6.21
$8.73
$11.25
0.32
$0.47
$1.05
$1.63
$2.78
$4.22
$7.10
$9.98
$12.86
0.40
$0.59
$1.31
$2.03
$3.47
$5.27
$8.87
$12.47
$16.07
0.52
$0.77
$1.71
$2.64
$4.51
$6.85
$11.53
$16.21
$20.89
0.60
$0.89
$1.97
$3.05
$5.21
$7.91
$13.31
$18.71
$24.11
1.00
$1.48
$3.28
$5.08
$8.68
$13.18
$22.18
$31.18
$40.18
Bottom Line
• Not enough money to make producers
get on board
• Expectations on EPA regulations
• Will the US join Kyoto protocol?
• What will the next government do?
• First adopter problem
• Paper: http://www.afpc.tamu.edu/