November - December 2000
Some may have heard the term "carbon sequestration" used in reference to farmers forming cooperatives to group-market their carbon sequestration rights. This would imply there are profit opportunities from this activity, but what does the term "carbon sequestration" mean?
Carbon sequestration refers to removing carbon from the atmosphere by changing it into a non-gaseous form. Carbon atoms are removed from the CO2 in the atmosphere and "locked up" (sequestered) so the gas no longer exists. There is a sentiment in the research community that increased levels of CO2, methane (CH4), and nitrous oxide (N2O) gases are causing global warming. Levels of carbon compounds in the atmosphere can be reduced through scaling back or eliminating processes that emit them or through carbon sequestration.
In 1997, the Intergovernmental Panel on Climate Change met in Kyoto, Japan, and developed an agreement calling for a 7% reduction from 1990 levels of CO2 in the atmosphere by 2008-2012. Since the panel itself has no authority to implement the agreement, the panel members must encourage the governments in their individual countries to ratify it and develop procedures for implementation.
Though the general belief is that the U.S. Congress will not pass the mandate suggested in the Kyoto Agreement, it is likely some action will be taken. Canada has already passed legislation similar to that outlined in the Kyoto Agreement.
So, what does all this mean for Missouri farmers? Agricultural practices both emit and act as removal mechanisms for CO2. Estimates indicate that certain agricultural practices have the potential to remove 133% more CO2 than is emitted into the atmosphere by farming.
In farming, carbon dioxide emission is evident every day -- through fuel exhaust from machinery, burning of plant or other material, chemical use, soil erosion, etc. However, agricultural practices such as reduced tillage, agro-forestry, or no-till lower the amount of CO2 in the atmosphere.
Firms emitting CO2 would have limited choices for reducing their net emissions should laws be enacted that come close to meeting Kyoto protocol. Their options would be (1) scale back, (2) improve technology so less emissions are produced, (3) pay someone to reduce their emissions, (4) develop a process to remove CO2 from the air (such as owning tree farms), or (5) pay someone else to enhance removal through carbon sequestration. Since agricultural production has the potential to remove 152 million metric tons of carbon annually (or 133% of the CO2 it emits), firms generating excess amounts of CO2 may be willing to pay farmers for their capacity to remove it, or "buy carbon sequestration rights." For example, since trees can store carbon in their wood which is only released as CO2 if the wood burns or rots, a firm might pay a pecan grower in southwest Missouri to enhance agro-forestry practices to remove more CO2 from the air. The additional CO2 removed would be considered as a substitute for reducing the level of CO2 emitted by the firm.
Though there is considerable uncertainty as to what legislation will be enacted, some people are speculating as to the potential value of carbon sequestration to Midwestern farmers. A study by Williams, Aller, and Nelson indicated that the price on the global market for sequestering carbon could range from $2.70 to $20.00 per ton of carbon sequestered. They indicated that current rates range from $.30 to $3.50 per ton in the U.S. They also reported estimates showing that Iowa farms may be able to sequester 0.5 to 1 ton of carbon per acre per year more than they emit, assuming some sequestration by the soil plus use of no-till and soil injected effluent application. Assuming 0.5 tons of excess sequestration capacity per acre per year and a price of $3 per ton of carbon removed, a farmer could receive $1.50 per acre per year. At $10 a ton a farmer could receive a carbon sequestration payment of $5 per acre per year and at $20 a ton a farmer could receive $10 per acre per year.
Should these opportunities become available, farmers will need to weigh the costs of enhancing their individual farm's CO2 removal capabilities versus the price offered. It is likely that an agreement between a firm and a farmer or group of farmers would be a multi-year contract.
At this time, the U.S. government has no direct program promoting carbon sequestration.
If U.S. farmers are to be paid in the foreseeable future for their ability to sequester carbon, it will most likely be by firms from countries which do have such programs.
Although there is some possibility that crop farmers may some day be paid for carbon sequestration, the most likely recipients of such payments are forest owners. Agro-forestry has great potential to sequester carbon, but current cost estimates range from $2 to $15 per ton, making the investment unprofitable.
Reference
Williams, J.R., T.D. Aller, and R.G. Nelson. "Carbon Sequestration: An Overview of the Issues" Presented at the Kansas State University Risk and Profit 2000 Conference, Manhattan, KS, August 17-18, 2000.