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Bush Farm Bill Offers Framework For Trading CO2 Credits From 'Sinks'

by Erica Martinson
May 3, 2007

The Bush administration's recently released Farm Bill proposes several measures for creating a future carbon dioxide (CO2) trading system, including a pollution credit reporting registry and a new federal panel to set uniform standards for measuring CO2 and other pollution that is naturally absorbed by crops and forest lands.

The proposal is significant because it shows the Bush administration's willingness to consider a cap-and-trade system for CO2 for agriculture, even though officials oppose a cap-and-trade system for industrial CO2 emissions.

The proposal could create a program for industrial emitters to purchase CO2 credits from agricultural and forestry landowners, since the lands act as a natural "sink" for CO2 and other greenhouse gases. But without clear standards for how credits are created and measured, few emitters will be willing to purchase credits because they lack certainty that the credits will offset their emissions.

While the administration's draft bill does not specifically call for a CO2 credit trading system, it calls for the creation of an interagency panel-with representatives from EPA, and the Agriculture, Interior, Energy, Commerce and Transportation departments-to "develop uniform standards for quantifying environmental benefits" from farmlands and forests, such as storage of CO2.

Carbon Capture Challenges
But a recent Congressional Research Service report is raising a number of potential challenges in using forests for carbon sequestration. Those challenges include quantifying long-term carbon storage in the face of changing land uses and the possibility of forest fires, according to the report, Carbon Sequestration in Forests.

Under the bill, federal agencies would be authorized to "adopt board standards for quantifying environmental services that establish credits to meet requirements of environmental and conservation programs." It also would provide the agriculture secretary with general authority to "promote actions that facilitate the development and functioning of environmental service markets involving agriculture and forestry."

At a Senate Agriculture, Nutrition & Forestry Committee hearing May 1, the committee's ranking Republican, Sen. Saxby Chambliss (R-GA), welcomed the bill as an opportunity to explore "how agriculture and individual farmers can tackle climate change." Chambliss together with Sen. Richard Lugar (R-IN) expressed interest in including specific standards for carbon credits in the Farm Bill.

But administration officials and some agriculture industry sources are urging Congress to refrain from mandating specific CO2 credit measurement standards in the Farm Bill and instead rely on standards set by the Chicago Climate Exchange, which the administration is already using in a voluntary pilot program.

Voluntary Efforts
John Hansen, chairman of National Farmer's Union (NFU) Legislative Committee, told the Senate panel that the North Dakota Farmers Union has developed a voluntary program that allows farmers to earn income by storing carbon through no-till crop production, long-term grass seeding practices, native rangeland and forestry, he said.

Farmers' credits are aggregated and traded on the Chicago Climate Exchange, at a price of approximately $3.70 per ton of carbon.

In response to questions from Chambliss, Hansen urged the committee to avoid using the Farm Bill to set carbon trading standards. "The Chicago Climate Exchange has established standards," Hansen said. "We've not seen anything to date that tells us those aren't good standards."

Meanwhile, a group that represents wetlands mitigation bankers-who preserve wetlands to offset development projects that destroy wetlands is urging Congress to create a CO2 cap as a way to encourage protection of wetlands, forests and other lands that store carbon and to create credits for offsets.

The bankers say creating forested land to store CO2 is similar to current wetlands mitigation practices, and carbon sequestration requirements could spur a market for forest banking. For example, the National Mitigation Banking Association (NMBA) is restoring hardwood wetlands in the Southeast, which could create CO2 credits to offset emissions.

During a House Natural Resources Committee hearing May 1, a spokesman for the group urged lawmakers to limit emitters' ability to pay fees in lieu of purchasing offsets, which EPA allows under its wetlands offset program. "Mitigation fees set by statute or rule (in-lieu of fees) impede the credit market and often fail to meet the offset goals," George Kelly, a board member of the NMBA told the committee.

First published: May 3, 2007 by Carbon Control News