Carbon credits and how they apply to farmers in the Southeast is probably the least understood and potentially most beneficial or detrimental policy facing growers as they plan for future farming operations.

Various systems for buying and selling carbon credits are in varying stages of development in the United States. These transactions could be made by private negotiations, or the trading could be through formal exchange mechanisms.

As one seller of carbon credits, commonly called aggregators, says, “Buying and selling carbon credits is like the wild, wild west — it’s a shootout.”

(Additional information can be found here and here).

On the cash market, the Chicago Climate Exchange claims to be “North America’s only — and the world’s first — global marketplace for integrating voluntary, legally binding emissions reductions with emissions trading and offsets for all six greenhouse gases.”

The Chicago Climate Exchange was launched in 2003. Trading on this exchange is similar to a commodity cash market. It is a contract market, which offers standardized and cleared futures contracts on emission allowances and other environmental products.

John Hodges, president of SunOne Solutions, which is North America’s top ranked Carbon Credit Aggregator, says, “There has been a lot of discussion recently about the impact on the agriculture and forestry community of new federal policies to spur clean energy and reduce carbon dioxide emissions, which are a major cause of air pollution and believed to be causing climate change.”

The legislation that was passed by the U.S. House of Representatives last summer and that is being proposed in the U.S. Senate this spring is often referred to as the “cap-and-trade” bill.

“The overall idea of cap-and-trade is to reduce America’s dependence on the fossil fuels (e.g. coal, oil) that are the most harmful to the environment over the next 40 years. Other forms of energy (e.g. natural gas, nuclear, wind power) do not pollute as much, or at all, and are abundant here in the U.S. So this shift will also help us become more energy independent by reducing our dependence on foreign oil, which now accounts for approximately two-thirds of U.S. consumption,” he adds

The latest version of this bill is being drafted by the bi-partisan group of Senators Graham (R-S.C.), Lieberman (Ind. Ct.), and Kerry (D-Mass.).

“Although it seems Washington, D.C., is very partisan these days, these Senators are discussing the bill’s provisions within both parties and it is expected any outcome will be a moderate bill that both Republicans and Democrats could support,” Hodges says.

The agriculture sector will most likely be affected by the bill in both negative and positive ways. Scientific studies conducted at the University of Tennessee and Texas A&M University conclude there could be modest cost increases to agriculture production (1 percent-2 percent), but that carbon credit incomes (also called “carbon offsets”) will play a key role in mitigating these cost increases. There is broad-based support on Capitol Hill for agriculture and forestry carbon credits and programs that incentive sustainable farming, ranching, and forestry practices.

The idea is that certain conservation practices, such as no-till farming, sequester additional carbon dioxide. After all, the carbon dioxide that is being put out by smoke stacks and tailpipes has to go somewhere — in the atmosphere, in the oceans, or in the ground (via plant life and root systems). The idea is to put more of the carbon dioxide we are currently taking out of the ground back into the ground.

“Understanding the pros and cons of carbon credits, is difficult at best. On a personal level, a typical American can offset his or her carbon use for about $216 per year. We can offset the use of a car for about $80 per year. Right now we don’t have to do that. Some believe Cap and Trade may make it mandatory for businesses to offset their carbon use, which may in turn filter down to forcing individuals to reduce their carbon footprint,” Hodges says

John McDaniel, a forester by trade and currently manager for SunOne Solutions Southeast operation, says the ideal scenario in the Southeast is to sign up forest land for carbon credits. Quite simply, trees sequester more carbon than crops.

The next best option is farm land that has been in no-till production for a number of years. Farmers in a long-term, no-till operation can sell carbon credits, sign over a percentage of those credits to SunOne, or other companies that buy carbon credits, and simply leave those credits in the bank.

If the price goes up, as expected as Cap and Trade legislation and other environmental policies come into place, these farmers stand to make some money. If legislation doesn’t happen and the price of carbon credits continues to fall, the farmer hasn’t lost anything, according to McDaniel.

SunOne offers growers in the Southeast some flexibility not offered by some other aggregators, McDaniel says. “If a grower is in a long-term no-till operation, he or she can book their carbon credits with us and for a small percentage of those credits we will pay the cost of appraising the value and monitoring the land.

“Also, we allow the grower to sell his or her credits anytime they like or hold on to them as long as they want to do so. Most aggregators don’t offer that much flexibility and lower the risk to farmers that much,” he adds.

“As with most investment opportunities, farmers will likely fare better dealing with a larger, reputable company with a history of doing business with landowners.

“Back in 2008 and 2009, when carbon credit prices were going up in eager anticipation of government action, literally hundreds of carbon credit companies sprang up. Now that prices have gone down as Congress has been working on health care and other pressing social measures, the number of carbon buying companies has gone down significantly. “Choosing wisely among those that remain can have a positive affect on long-term farm income.”

McDaniel, who is headquartered in Opelika, Ala., says growers should look at selling and buying carbon credits much like they look at buying seed and selling crops. A key, he says, is finding a company with on-the-ground representatives who understand farming and land management.

Southeast farmers in need of obtaining more information about carbon credits can contact McDaniel by e-mail at johnm@sunonesolutions.com or phone (334) 749-6111.

e-mail: rroberson@farmpress.com