Improving Lives, Communities and the EnvironmentImproving Lives, Communities and the EnvironmentThrough Natural Resources Conservation

Helping People Help the Land.

Dr. Carolyn OlsonWRI WorkshopApril 29, 2009

Challenges of Accounting for Soil Organic Matter in the Environmental

Offsets Market

NRCS mission goals

• High Quality, Productive Soils

• Clean & Abundant Water

• Healthy Plant & Animal Communities

• Clean Air

• Adequate Energy Supply

• Working Farm & Ranch Lands

What we do

Natural Resources Conservation Service (NRCS)

• Provides local assistance to help private non-federal land-owners conserve soil, water, air and other natural resources

• Works with partners to develop and refine planning tools for use by land owners, field personnel and others

• Helps translate basic research into useable technologies for our field personnel and clients

• Develops conservation plans

• Access to technical expertise and cost- share opportunities for land-owners

Mitigation of Greenhouse Gases and other Environmental Issues through

Agricultural Soil Management Practices

USDA-NRCSOpportunities for Managing GHG and

Carbon Sequestration

Conservation Practices• Targeted Incentives

Cost-share Programs

– EQIP, CIG grants– CSP– Wildlife Habitat Incentive– Wetlands Reserve– Grasslands Reserve– Healthy Forests Reserve

http://nrcs.usda.gov/feature/outlook/Carbon.pdf

NRCS Assistance

• EQIP - Financial assistance for Practices:

- To reduce agricultural impacts on air quality

- Improve animal waste management

- Irrigation systems to produce energy savings

- Residue and tillage management

• EQIP – CIG (Conservation Innovation Grants): New and innovative technologies related to air quality, climate change and energy

NRCS Assistance

• WHIP (Wildlife Habitat Incentive Program– Implementation of vegetative practices

• CSP (Conservation Stewardship Program)– Enhance or implement new practices in priority air

quality nonattainment areas– Soil quality enhancements– Energy conservation concerns:

renewable fuel use, energy generation, recycling of oil products, energy audits

Options for Reducing GHG in the Agriculture Sectors

• Existing policies– Conservation programs (EQIP, CSP, CRP)– Renewable fuels standard– Encouraging private sector action

• Potential policies– Expand current policies– Regulation– Incentives (financed by an allowance auction or

carbon tax)– GHG offsets (under a federal cap-and-trade)– Federal lands

• International– UNFCCC Bali Roadmap – new negotiations for a post

2012 agreement– Upcoming International Meetings - COP 15

• Federal – New initiatives

• 2007 Energy Independence and Security Act (EISA)

– 2008 Farm Bill

• Potential Agency Regulations (External)– EPA Rulemaking for GHGs

• United States Congress – Bills to be considered by the 111th Congress in 2009

Stressors on USA Policies Related to GHGs

State and Private Sector Initiatives

• States in the USA– Western Climate Initiative (WCI) – Northeastern States – Regional Greenhouse Gas

Initiative (RGGI)

• Private Sector Registries– Chicago Climate Exchange (CCX)– Numerous Voluntary Activities and Transactions

• Actions by Companies and Retailers– Demand for carbon neutral goods

Options for Environmental Regulation

• Traditional Command and Control– Regulatory agency sets standards

• Specific technologies (scrubbers)• Performance (tons, tons/unit output)

• Cap and Trade– Regulatory agency sets overall objective (total allowable emissions)

• Allocates or auctions emission allowances • Firms must obtain allowances in order to emit a pollutant

– Firms can receive allowances, purchase allowances, or reduce emissions

• Cap and Trade with Offsets• Unregulated firms can receive credits for reducing emissions• Regulated firms can purchase offset credits to meet regulatory requirements

(“offsetting emissions”)

Offset Markets Issues

Issue: Permanence -- Will the carbon stay out of the atmosphere? – Potential solutions:

• Assign liability, continuous reporting,• temporary credits, renting credits, • Discounting

• Verifying the existence of carbon stocks is easier over time– Cumulative aggregation of carbon is easier to

detect than year-to-year fluctuations

Offset Markets

Issue: Leakage – Will the emissions move elsewhere?– Potential solutions:

• Discount credits,• Exclude activities, • Reporting requirements -- document that changes

did not occur elsewhere,• Accept it (adjust national goals)

Offset Markets

Issue: Uncertainty –What if our estimates are wrong?– Potential solutions:

• Exclude categories or pools;• Discount credits using an uncertainty factor,

– One-tailed tests

• Accept it (recognize that uncertainty does not imply bias – laws of large numbers apply)

Offset Markets

Issue: Additionality – Would the action happen anyway?– Potential solutions:

• Limit entry (categorical exclusions)– Exclude forests (EU)– Exclude deforestation (CDM)– Exclude forest management (several US registries)

• Comparison lands (Duke Protocol)• Document justification,

– Reporting requirements (CCAR)– Barrier tests

• Discount credits, – Proportional additionality

• Accept it (adjust national goals)

Offset Markets

Issue: Baselines –What are we measuring benefits against?Options:

Historic• Base year/period carbon stocks;• Base year/period carbon fluxes;• The actions of others (comparison lands)

Expectations• Projections of business-as-usual;• Projections of expected improvements;• Projections of expected average business practice.

Additionality and Baseline Concerns

• Early Adopters – begin conservation practice(s) prior to base year or period– Exclude, limit or …

• SOM accumulation just beginning to provide most valuable per acre carbon offsets

• Penalizes the environmentalist/conservationist• Promotes tendency to change conditions to realize

rewards under new system – environmental costs may be high (unintended consequences)

Additionality and Baseline Concerns

• New adopters – begin conservation practice(s) during or after base year– May have previously abused their land,

plowed out rangeland or converted pasture, grassland to cropland

– Perverse environmental behavior rewarded– Per acre carbon sequestration offset value is

years in the future

SOIL CARBON DYNAMICS IN RESPONSE SOIL CARBON DYNAMICS IN RESPONSE TO TILLAGETO TILLAGE

SOIL CARBON (% OF ORIGINIAL) IN RESPONSE TO CULTIVATION

SO

IL C

AR

BO

N

0

100

PLOWING

years

50

SOIL CARBON DYNAMICS IN RESPONSE SOIL CARBON DYNAMICS IN RESPONSE TO TILLAGETO TILLAGE

SOIL CARBON (% OF ORIGINIAL) IN RESPONSE TO CULTIVATION

SO

IL C

AR

BO

N

0

100

PLOWING

PERENNIAL VEGETATION

years

CONSERVATION TILLAGE

50

Points to Consider

• Additionality and leakage can be addressed at the project-level or in setting national goals;

• Increasing transaction costs and discounting benefits will amplify problems with additionality;

• Permanence can be dealt with by assigning liability;

• Uncertainty is different than bias – unbiased estimators should provide the best approximation of expected benefits.

Implications for Agriculture

• We need to better understand what prompts landowners to commit to certain agricultural practices

• Emerging GHG markets offer producers and landowners opportunities and potential risks.

• Legislation is being discussed that could shape how contributions from agriculture are given credit.

• Debates/discussions are occurring at the international, federal, and state levels.

-100

0

100

200

300

Enteric CH4

Manure CH4

Manure

N2O

Rice CH4

Soil N2O

Organicsoil CO2

Mineralsoil CO2

Fossilfuel CO2

Tg

CO

2 e

qu

ivale

nt

US Agricultural GHG Emissions by Source

Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990 – 2006. EPA, 2008.

Why is there interest in Cap-and-Trade?

Concept: Regulators set overall limits on emissions (or environmental performance). Firms must have allowances to emit the pollutant. Allowances can be bought, sold, or transferred

Advantages:• Establishes clear property rights for pollutants

• Taps market forces to efficiently allocate resources to reduce pollution

• Provides incentives to innovate

• Equates costs of environmental control across all polluters

Concerns:• Makes it difficult to address localized environmental damage

• Could concentrate pollution in lower income areas

• Distribution of allowances creates new assets – and transfers of wealth

Implications of Discounting to Address Additionality

Tons GHG Abated

$/Ton GHG

Offset Price

Offset Quantity

Discounts

Effective Offset Price

Offset Quantity

NRCS Global Change Priorities• Targeted Incentives: Implement Conservation

Programs with Carbon Sequestration & Greenhouse Gas Benefits

• Climate Change Literacy and Awareness

• Technology Developments for Voluntary GHG Reporting:

Develop Methods to Estimate Agricultural GHG Sources and Sinks – Decision Support Tools

Support Direct Carbon Measurement Techniques

NRCS Global Change Priorities

• Improve Resource Monitoring, Forecasting, and Assessment: Enhance Soil Survey, National Resources Inventory NRI, SNOTEL and SCAN

• Market-Based Initiatives and Agreements

• International Activities Methane to Markets

Cooperate with State Dept on Bilateral and Multilateral Agreements

What we do

The Natural Resources Conservation Service, NRCS, provides local assistance to help people voluntarily:

• Protect soil, water, and related natural resources

•Identify natural resource concerns

•Develop conservation plans

•Access technical expertise andcost- share opportunities

on private, non-federal lands.

Our approach

NRCS professionals serve every county in the US: • serve local people who request assistance,

• promote partnership efforts

• deliver science-based information and technology,

including decision support models

What we do

NRCS technology development:

•Work with partners to develop and refine planning tools for use by field personnel and national leadership

•Help translate basic research into useable technologies for our field personnel and clients

•Provide technical training for agency personnel