Climate Change Implications: Policy, Carbon Markets and the Farm. Edgar Hammermeister, P.Ag. 2nd VP Soil Conservation Council of Canada

Transcription

1 Climate Change Implications: Policy, Carbon Markets and the Farm Edgar Hammermeister, P.Ag. 2nd VP Soil Conservation Council of Canada

2 Canada Commits to Kyoto Ratification of Kyoto Protocol December, 2002 Targeted Emission Reductions 6% below 1990 emissions First Commitment Period

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5 30% over target

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8 Percent Decline in Realized Net Farm Income Due to Kyoto Implementation Authors: C. Nagy, R. Gray. U of S College of Agriculture, Ag. Ec. Province MB SK Effect of Carbon Market and Natural Gas Demand Change On Net Income $15/t CO2e % $40/t CO2e % AB

9 Canadian Agriculture: 10% the problem, 20% the solution! Two Solutions, Two Markets Emission Reductions Adoption of technology and management that reduces GHG emissions. Permanent in nature. Tradable like a commodity. Emission Removals Carbon Sinks Created and maintained by management. Are not permanent, but are reversible. Special considerations.

10 Net Breakeven CO2e Price to Cover Farm Kyoto Costs after BAU Discount. Authors: C. Nagy, R. Gray. U of S College of Agriculture, Ag. Ec. Scenario relative to BAU activity Prairie Average (2007) $/t CO2e (Net to Farmer) Little change in 0-Till adoption Increasing 0-till adoption ( Trend Line)

11 Trading Carbon at the Farm Offset trading system is being contemplated. Project Proponents will come forward. As will Aggregators and Brokers. Farmers to review: Contract value, penalties Protocol flexibility (land management) Maintenance liability

12 SSCA Vision for a C Credit Trading System C credit ownership Farmer created, maintained, & owned Credit value retained If a value to Canada then value to Farmer Simple and science based Price Discovery Transparent, liquid, linked to global market.

13 For more information: Edgar Hammermeister, P.Ag. Saskatchewan Soil Conservation Association Home Phone

14 Meeting Future Climate Challenges? Public Crop Research and Testing Adaptation, variety testing New crop opportunities? Agronomy Research New crop agronomy Increasing production efficiency

15 Meeting Future Climate Challenges? Policy will create cost and opportunity Cost to farmer for Canada meeting Kyoto - SSCA-APAS study Opportunity Soil sinks GHG mitigation Biofuels Food supply crop diversity

16 Two Kinds of Markets are Emerging Compliance-Based Narrow restricted to regulated sectors Drives both markets Gov t imposes scarcity Guaranteed demand Strict requirements High transaction costs Voluntary Retail, business and corporate sector demand C Neutrality Movement Leverage this market to achieve economywide actions Can redirect capital to Agriculture

17 What Drives Voluntary Demand? Companies are interested in Carbon Offsets: To learn and raise awareness of offset projects Reduce their internal emissions (BP 30% savings) Reducing their C footprint for shareholders Branding themselves as C-Neutral (Starbucks, Walmart) Keeping investors confidence

18 Challenges to the Voluntary Market Credibility of the product is in question ENGOs questioning the validity of the tonnes being traded voluntarily Standards and transparency needed Reputable retailers needed ( Verified by Visa ) Not unlike the Organics Market in Canada

19 Annual Sequestration for both Current and Potential Direct Seed Adoption using three possible Sequestration Rates Annual Carbon Sequestration (Mt CO2/year) Current (21.8 M-Ac) Potential (68 M-Ac) 0.5 t-co2/ac/yr 1 t-co2/ac/yr 1.5 t-co2/ac/yr Direct Seed Adoption Rates

20 Offset System Proposed Features or Areas of Concern Project based system ISO Project start date (BAU): 2000 Project registrations beginning 2006 Project re-registration: after 8 years Revised BAU?

21 Offset System Proposed Features or Areas of Concern cont. Price Assurance Mechansim (PAM) C Sink credits limited to a domestic market Use of Coefficients (Removal Factors)

22 At the Farm, Protocols and Liabilities Protocols: Default vs Custom Liabilities: Offset (Permanent) Credits vs Temporary Credits

23 Default Protocol Government established Activity-based approach Zero till Forage conversion Regional removal factors Incorporates 2000 baseline Activity baseline measurement not required

24 Custom Protocol Developed by Project Proponent Can use either: Measured carbon stock changes Activity-based coefficients Baseline measurement required

25 Example Contract Requirements No tillage including fall/spring fertilizer banding Use a narrow opener ( 33% SBU) On-row packing Land rolling or harrowing for pulse crops allowed Chem-fallow permitted in Brown & D. Brown Post-emergent fertilizer applications allowed Post-harvest harrowing is allowed

26 Example Contract Details Chaff removal Allowance of baling, green feed, silage? Manure applications No burning? No in-crop tillage

27 Example Farmer Obligations Land under project subject to 3 rd party verification 20% of farms inspected Assurance that site meets project requirements Documentation of anomalies or inconsistencies Farmer contract obligations Annual reporting Penalties for false reporting

28 At the Farm, Protocols and Liabilities Protocols: Default vs Custom Liabilities: Offset (Permanent) Credits vs Temporary Credits

29 Offset Credits Permanent credits with maintenance liability Higher sale value Marketing ease Liability a major issue Liability period yet to be determined Reversals replacement costs? Encumbrance on the land title?

30 C sequestration as a Commodity Sell Credits Maintenance Liability Repurchase Credits

31 Temporary Credits Storage of one tonne for one year Similar concept to leasing Accumulate over time Less value up front Value of sink increases over time Market not well defined No liability for maintenance

32 C Sequestration as a Service Storage Lease Income Storage Space

33 BMP LAND MANAGEMENT AND CARBON GAIN RATES OF GAIN - CO2 per ha. per Year Cropland Convert Marginal Cropland Rangeland - Intensive Fix degraded land 0.73 tonnes/ha./yr tonnes/ha/yr tonnes/ha/yr. 1.3 tonnes/ha/yr.

34 Credit value Figure 1. Value of one tonne CO2e of soil organic nitrogen as a function of Urea price Organic N value ($/tonne CO2e) $45.00 $40.00 $35.00 $30.00 $25.00 $20.00 $15.00 $10.00 $5.00 $0.00 y = x $0.00 $ $ $ $ Urea ($/tonne)

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36 Projected Canadian GHG emissions and the Kyoto Protocol Mt CO2e emissions 607 Mt 1999 (699 Mt) Mt BAU Gap 238 Mt Revised Kyoto target 571 Mt

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40 National Climate Change Plan The original gap for was 238 Mt 300 Mt (AAFC) 60 Mt actions underway Ag component? 100 Mtnew actions - $3B new policy (spring 2005) 140 Mt yet to be determined.

41 Offset Trading System (proposed) Farmer Protocols + Contracts LFEs and Aggregator / Brokers Verifier Climate Fund credits traded Project Proponent Quantification Protocols certificates issued Offset System Registry Project Authority (Government of Canada) Review, Validation, Certification Advisory Group