Introduction to Ag Carbon Trading

1. Introduction to Ag Carbon Trading Phil Metzger, RC&D Coordinator USDA – Natural Resources Conservation Service Central NY Resource Conservation & Development Project, Inc.

2. CO2 and Global Warming

3. What is Carbon Trading? A strategy for mitigating the emission of Carbon Dioxide (CO2) and other Greenhouse Gasses (GHG) through a “Cap-and-Trade” system

4. What is Cap-and-Trade? Regulatory programs that cap harmful emissions by limiting them though a permitting system and distributing the emissions permitted to different stakeholders. These are called allowances, permits or credits Stakeholders can buy and sell the rights to the permitted emissions or ‘credits’ after their initial distribution.

5. What is Cap-and-Trade? Goal of Cap-and-Trade is to prevent further increases in net emissions

6. Cap-and-Trade • Example: • Cap-and-Trade allows Power Plant A to reduce emissions well below their cap and sell the resulting ‘carbon credits’ to Power Plant B who cannot easily modify their operations to meet the cap limit • How does this reduce GHGs?

7. Cap-and-Trade Cap-and-Trade is a term that describes a market based system for controlling pollution. Cap-and-Trade requires a regulatory body to set an emissions cap for the polluting industry as a whole for a set period of time What would be a non-market based system?

8. Cap-and-Trade • Examples of Cap-and-Trade Programs: • Kyoto Protocol is a global Cap-and-Trade program to mitigate the man-made emissions of GHGs. • Regional Greehouse Gas Initiative (RGGI), a 10-state Cap-and-Trade program that will regulate carbon dioxide emissions from only the electric sector beginning in 2009.

9. Cap-and-Trade What happens when emissions targets are met?

10. Agricultural Offsets • Methane destruction is an example of an offset • Offsets can also come from carbon sequestration. • For example, if a company plants 100 acres of trees, they can sell offsets equivalent to the quantity of carbon that will be sequestered by growing the trees

11. Agricultural Green House Gases • Carbon trading includes other GHGs that contribute to climate change • Other common agricultural GHGs are: • Methane (CH4) • Nitrous Oxide (N2O) • These are much more potent GHGs in that their global warming potential (ability to retain heat) in the atmosphere is much greater.

12. Agricultural Green House Gases Methane (CH4) has a global warming potential of 23 times that of CO2 Nitrous Oxide (N2O) has a global warming potential of 298 times that of CO2 GHGs are multiplied by their conversion factor to obtain CO2 equivalents (CO2e) This allows GHGs to be traded in CO2 units.

13. Agricultural Offsets • Agriculture offsets can be achieved by three main ways: • Carbon Sequestration – storing carbon in forests & soils • Fossil Fuel Displacement – alternative energy or energy efficiency • GHG Destruction – combusting methane to reduce it’s global warming potential

14. How do we utilize Agricultural Offsets? Regional Greenhouse Gas Initiative (RGGI) will regulate large electric power plants by “capping” their carbon emissions. Agricultural Offsets can be purchased by power plants from farms to meet a small fraction of their “cap.”

15. Carbon Registries Regional Greenhouse Gas Initiative (RGGI) Chicago Climate Exchange (CCX) Environmental Resources Trust (ERT) CA Climate Action Registry (CCAR) US EPA Climate Leaders (EPA CL)

16. Carbon Registries - RGGI Regional Greenhouse Gas Initiative (RGGI) – cooperative effort by 10 Northeast & Mid-Atlantic States to cap emissions of CO2 from electric power plants and subsequently reduce emissions by 10%. Participating states: Connecticut Delaware Maine New Hampshire New Jersey New York Vermont Massachusetts Maryland Rhode Island

17. Carbon Registries - RGGI RGGI program has targeted 2019 to complete the reductions The focus is on the power plants because, for example, in NY they contributed approximately 25% of all GHG emissions of CO2 into the atmosphere in 2005

18. Carbon Registries - RGGI What will happen after the 2019 cap is achieved?

19. Carbon Registries - RGGI • Current RGGI regulations include 5 eligible offset project categories: 1. Landfill methane capture & destruction 2. Reduction in emissions of sulfur hexaflouride (SF6) 3. Sequestration of carbon due to afforestation 4. Reduction or avoidance of CO2 emissions from natural gas, oil or propane end-use combustion due to end-use energy efficiency 5. Agricultural manure management methane capture and destruction

20. Selling Carbon Credits • Simplified Steps: • Apply practice (Tree Planting, Methane Destruction) • Outside party verifies the amount of allowable credits • Credits are listed on a Registry • Credits are purchased off the Registry and retired

21. Agricultural Carbon Trading Go to agcarbontrading.org for more information

22. Presented by: Phil Metzger, RC&D Coordinator USDA NRCS / CNY RC&D Norwich, NY 607-334-3231 x4 phil.metzger@ny.usda.gov Prepared with information from the agcarbontrading.org website developed and hosted by Central NY RC&D, contributions by Jeni Wightman, Stacie Edick, R. Neil Sampson, John Duxbury, John Marschilok, David Watson & Phil Metzger

23. Cap-and-Trade Example (Simplified Illustration ): 1. Before regulation, emissions from this industry equaled 1000 tons per year, 500 tons emitted from each Plant A and Plant B. 2. The regulatory agency sets a Cap of 800 tons for the industry. 3. There are only two parties in this industry (very simple example!).

24. Cap-and-Trade 4. The regulatory agency assigns each party their Allowances. Plant A and Plant B each receive an Allowance to emit 400 tons • (100 tons less than they each currently emit) 5. Plant A cannot reduce its emissions down to its Allowance of 400 tons, it cannot meet its emissions reduction target of 100 tons. 6. Plant B can reduce its emissions down to below its Allowance of 400 tons, exceeding its emissions reduction target of 100 tons by reducing actual emissions by 200 tons.

25. Cap-and-Trade 7. Plant B can sell 100 tons of its Allowance to other parties in the industry. 8. Plant A can purchase 100 tons of Allowances from Plant B, now it has met its total Allowance of 400 tons, so it is in compliance. 9. 500 tons from Plant A plus 300 tons from Plant B equals 800 tons total for the industry—so total emissions have not exceeded the Cap set by the regulatory agency. What was the total emissions reduction for the industry?

26. Cap-and-Trade 10. The regulatory agency now knows that 800 tons is an achievable cap, and then reduces the cap further to 700 tons and the process starts again. NOTE: IF Plant A could only purchase 70 tons of Allowances from Plant B, then Plant A could also purchase 30 tons of “Offsets” from non-regulated parties who engage in practices which reduce emissions or sequester carbon such as changing to improving energy efficiency or planting grass or trees.