New international standards to fight global climate change are turning permits to emit carbon dioxide and other greenhouse gases into a valuable commodity. Markets to facilitate the buying and selling of these permits are already being created, and they are expected to include trade-in credits for sequestration activities -- farming, forestry, and other land-management practices that keep carbon in the ground and out of the atmosphere.
These markets have tremendous potential to help our environment and the economy, especially in cash-strapped agricultural and rural states that have plenty of land to serve as "carbon sinks." According to Northwestern University economist Richard Sandor, even using the conservative estimate that carbon will trade between $20 and $30 per ton on the open market, "paying farmers to sequester 200 million metric tons of carbon per year could add $4 billion to $6 billion of gross income to the farm economy -- and possibly up to 10 percent of typical net farm income."
The Kyoto Protocol represents these states' best bet for cashing in on their carbon-storage potential. Under this international pact, which the Bush administration rejected and Russia has delayed implementing, most major developed nations agreed to cut their emission levels by 2012 to 95 percent of the amount they were emitting in 1990. Companies operating in signatory nations will have to meet their host countries' respective caps either by reducing their own emissions or by buying emission allowances or sequestration credits on the open market -- including, in theory, credits for sequestration activities in the United States. So, for example, a multinational firm with operations in Spain could help meet its obligations under the Spanish cap by buying credit for carbon sequestered on a Kansas farm or in an Idaho forest.
In 2004, the European Union will allocate emission credits to emitters in its member nations, with trading slated to begin in 2005. Here in the United States, close to two dozen of the nation's largest greenhouse gas (GHG) emitters recently joined with the city of Chicago to establish the Chicago Climate Exchange for the trading of emission credits (see "PPI Carbon Futures Play"). The participants pledged to reduce their emissions by 4 percent based on an average of their 1998-2001 emissions, or roughly by 50 million to 60 million tons, by 2006.
Although the United States is not a participant in the international Kyoto process, several proposals to encourage carbon trading here would recognize sequestration activities. They include the Climate Stewardship Act of 2003 (S. 139) introduced by Sens. Joseph I. Lieberman (D-Conn.) and John McCain (R-Ariz.) and the Clean Air Planning Act (S. 843) sponsored by Sens. Thomas Carper (D-Del.), Lincoln D. Chafee (R-R.I.), and Judd Gregg (R-N.H.). But prospects for their quick passage are dim, particularly given the recent defeat of S. 139 in the Senate.
Several states have already begun positioning themselves to reap the economic benefits of trade in sequestration credits. In 2000, for example, Nebraska's unicameral legislature created a Carbon
Sequestration Advisory Committee comprised of representatives from agriculture, energy, academia, and state government to assess sequestration's economic and environmental benefits (see "PPI Carbon Cash Crop Play"). Progress there has slowed, however, due to the state's budget shortfall, the pressing need to deal with a prolonged drought, and turnover in the Legislature and state government.
Meanwhile, Alaska House Democratic Leader Ethan Berkowitz introduced legislation (H.B. 196) this year that would direct the state's Department of Natural Resources (DNR) to study how a sequestration-credit program could work in Alaska -- and perhaps ease the state's $800 million structural budget deficit. The state House passed the bill 35-1 and its Senate counterpart (S.B. 114) is now awaiting committee action in that body.
Specifically, Berkowitz's bill would create a 14-member gubernatorally appointed panel of experts to recommend ways to enhance Alaska's ability to participate in carbon trading systems, with an emphasis on policies that maximize economic benefits for private landowners. It would require the group to recommend how to verify that farming, forestry, and other land-management practices actually sequester carbon -- a key to the success of any sequestration-credit trading system -- and to suggest how public, private, or
nonprofit entities could act as intermediaries for small landowners and businesses in carbon trading markets (for instance, by bundling their sequestered carbon for sale). The bill would also direct the state commissioner of natural resources to assess all public and private land in Alaska for past carbon sequestration and future sequestration potential.
Professors Bruce Larson of the University of British Columbia and Brad Gentry of Yale University prepared a preliminary analysis for the state's DNR that shows Alaska's carbon sequestration potential could be worth between $400 million and $500 million at current market rates.
Companies are already taking note. BP Exploration (Alaska) Inc., for example, is using a $5 million federal grant to study how to use carbon dioxide captured from power plants and other combustion sources to increase oil production in "hard" Alaskan oil reserves. The captured GHG would be pumped deep into the earth to force oil up, with the gas remaining deep underground. It is a potential trifecta for the environment, the state, and the company: Less carbon would enter the atmosphere, the state would generate revenue through oil extraction taxes and the sale of sequestration credits, and BP would get help meeting its international obligations and voluntary goals GHG emissions.
"For us, this represents a significant opportunity," said Ronnie Chappell, a BP spokesman, in a 2001 interview with the Alaska Journal of Commerce. "If we can get the cost of removing the carbon dioxide (from power plants and other facilities that have substantial emissions) low enough, we can use it to enhance oil recovery."
Other states are moving to use forests and farmland to sequester carbon in conjunction with carbon trading markets. In 2001, a London-based environmental consulting company paid $50,000 to the Confederated Salish and Kootenai Tribes of Montana to buy prospective carbon sequestration credits that will result from the reforestation of tribal land burned by forest fires in 1994. The buyer and seller of the credits were brought together by the Montana Carbon Offset Coalition, a nonprofit group created in the 1990s with support from the Montana Legislature. The coalition is a matchmaker that connects Montana landowners and communities that have carbon sequestration credits to sell with companies and others that need or want to lower GHG emissions. The $50,000 investment by the British company Sustainable Forestry Management will cover the initial cost of reforestation, which, when complete, is expected to keep about 48,000 tons of carbon out of the atmosphere during the first 80 years of the agreement. At the end of that term, all carbon offsets will revert to the tribes. Carbon storage will be maintained on the site for at least 100 years.
In 1990, New Mexico lawmakers passed legislation requiring increased efforts to plant new trees throughout the state. Since the Forest Re-Leaf Program was started, more than 17,000 trees have been planted in more than 60 New Mexico communities, sequestering an estimated 139 metric tons of carbon dioxide annually.
In a similar vein, in January 1991 a working group representing Minnesota's DNR and pollution control agencies concluded that the state's forests already contained about 276 million tons of carbon and had the potential to become a much larger carbon sink. By planting more trees and through better forest management practices, the group reported, it could be possible in the long term to increase the amount of carbon stored in the forests by 25 percent -- an amount roughly equal "to fixing three years of annual emissions of carbon by the state," according to a recent study by Professor Barry Rabe of the University of Michigan.
Berkowitz stresses the urgency for action: "Though the carbon credit market is growing, it is a limited market." He notes that, "if Alaska fails to prepare now, we may miss this unique opportunity -- and miss out on millions in revenue." Implementing policies and creating institutions to capitalize on tomorrow's carbon trading markets can give Alaska and other states an important competitive advantage, and help put their budgets back in the black.
U.S. Department of Energy's Carbon Sequestration
http://www.legis.state.ak.us/basis/
get_bill_text.asp?hsid=HB0196A&session=23
New Mexico's Re-Leaf Statute
http://www.emnrd.state.nm.us/forestry/releaf/
RELEAF_STATUTE_formchg.pdf
Nebraska Legislative Bill 957
http://srvwww.unicam.state.ne.us/pdfs/
XCVI/intro/INTRO_LB957.pdf
Press release on Sustainable Forestry Management's purchase of greenhouse gas emissions offsets from the Confederated Salish and Kootenai Tribes of Montana
http://www.envifi.com/News/sfm_SandK.htm
Climate Stewardship Act of 2003 (S. 139)
http://thomas.loc.gov/
Clean Air Planning Act of 2003 (S. 843)
http://thomas.loc.gov/
Chicago Climate Exchange
http://www.chicagoclimatex.com/
Rabe, Barry G., "Greenhouse & Statehouse: The Evolving State Government Role in Climate Change,"
Prepared for the Pew Center on Global Climate Change, November 2002
http://www.pewclimate.org/global-warming-in-depth/
all_reports/greenhouse_and_statehouse_/index.cfm
Hon. Ethan Berkowitz
House Democratic Leader
State Capitol, Room 404
Juneau, AK 99801-1182
(907) 465-4919 (Anchorage office)
(888) 465-4919 (Juneau office)
(907) 465-2137 (fax)
Representative_Ethan_Berkowitz@legis.state.ak.us
Bradford S. Gentry, J.D.
Lecturer in Sustainable Investments
Co-Director of the Yale-UNDP Collaborative Program on the Urban Environment
Yale School of Forestry & Environmental Studies
Sage Hall
205 Prospect Street
New Haven, CT 06511
bradford.gentry@yale.edu
Robert L. Kane
Carbon Sequestration Issue Manager
Office of Fossil Energy
U.S. Department of Energy, FE-26
1000 Independence Ave. SW
Washington, DC 20585
(202) 586-4753
(202) 586-1188 (fax)
robert.kane@hq.doe.gov
Ken Holman
Program Coordinator
Minnesota DNR Forestry
500 Lafayette Road
Box 44
St. Paul, MN 55155
(651) 296-9110
(651) 296-5954 (fax)
ken.holman@dnr.state.mn.us
Barry G. Rabe, Ph.D.
Director, Program in the Environment
University of Michigan School of Natural Resources and the Environment
1533 Dana Building
430 E. University
Ann Arbor, MI 48109-1115
(734) 647-4333
brabe@umich.edu
Jan Mazurek
Director
Center for Innovation and the Environment
Progressive Policy Institute
600 Pennsylvania Ave., SE, Suite 400
Washington, DC 20003
(202) 423-8778
(202) 544-5014 (fax)
jmazurek@dlcppi.org
NDOL.org Keywords: PPI Carbon Cash Crop II Play
Back to the Main Menu
