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New Energy Economics: Potential Value of Carbon Offsets Supplied by N. D. Farmers and Ranchers

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Cole Gustafson, NDSU Biofuels Economist Cole Gustafson, NDSU Biofuels Economist
Potential Value Per Acre of Carbon Offsets to N.D. Producers Potential Value Per Acre of Carbon Offsets to N.D. Producers
A cornerstone of the new legislation is the development of a carbon cap-and-trading scheme.

On June 26, the U.S. House of Representatives passed the American Clean Energy and Security (ACES) Act, commonly known as the Waxman-Markey climate change bill. The historic bill aims to reduce greenhouse gas emissions by 17 percent from 2005 levels by 2020 and 83 percent by 2050. The bill also aims to create environmentally friendly jobs, boost reliance on renewable energy and help wean the U.S. economy off oil imports.

A cornerstone of the new legislation is the development of a carbon cap-and-trading scheme. Under this system, a cap is set on the maximum amount of greenhouse gases that a regulated industry can emit. In order to comply with new caps, industries will have to invest in new emission-reducing technologies. Those firms that adopt new technology and reduce their emissions below their cap can sell the additional reduction as a “credit” to other firms or industries that find it more difficult to comply. In addition, firms in other nonregulated industries also can reduce carbon emissions and sell “offsets” to firms in regulated industries, again to help them comply.

In the House version, it appears that agriculture will not be a regulated industry, but will have the opportunity to supply carbon offsets. With respect to land management, agriculture could have the opportunity to sell offsets arising from adoption of minimum or no-till farming, seeded grasslands, improved rangeland management and the planting of trees. Many farmers already are selling carbon offsets on the Chicago Climate Exchange (CCX). In 2008, CCX marketed 7 million metric tons of carbon offsets. Many of the offsets originated from agricultural sources.

Historically, the value of carbon offsets has been highly variable, ranging from $1 to $7 per metric ton of carbon. Carbon values are expected to rise significantly if carbon cap-and-trade legislation is adopted in the U.S. In Europe, where emission regulations are higher, carbon values have approached $40 per metric ton. In the stimulus bill, the cost per ton for carbon reductions was valued at $69 to $137 under implementation of a strong U.S. cap-and-trade program.

Current market prices and other program details can be obtained from the CCX Web site at http://www.chicagoclimatex.com/.

At current carbon trading prices, offsets might not make a large difference in farm and ranch income. The range is from 12 cents to $2.25 per acre. However, there is significantly larger income potential in the future because carbon offset prices are expected to rise. In addition, offsets represent an important additional income source when combined with existing U.S. Department of Agriculture farm bill programs. The USDA explicitly allows landowners to sell offsets on lands enrolled in farm bill programs.


NDSU Agriculture Communication

Source:Cole Gustafson, (701) 231-7096, cole.gustafson@ndsu.edu
Editor:Rich Mattern, (701) 231-6136, richard.mattern@ndsu.edu
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