Carbon Sequestration in Spring Wheat Producing Regions of the Northern Great Plains Dean A. Bangsund F. Larry Leistritz North Dakota State University

Study Sponsors Plains CO2 Reduction (PCOR) Partnership One of 7 regional partnerships throughout the U.S. Collaboration of academic, private, and government partners Evaluate and demonstrate CO2 sequestration technologies in the northern Great Plains Funded by the National Energy Technology Laboratory, U.S. Department of Energy

Plains CO2 Reduction (PCOR) Partnership Region

PCOR Partners Eagle Operating Inc. Fischer Oil and Gas, Inc. 2/16/05

Spring Wheat Producing Regions of the Northern Great Plains

Production Background Northern Great Plains Dependent on small grains (75% of planted acreage) Historically used crop-fallow practices, currently shifting to conservation and no-till practices Semiarid growing conditions, combined with marginal soils Substantial participation in conservation programs

One-pass operations, either with air seeders or no-till drills in the spring, combined with minimal or no fall tillage, are the most common practice.

Carbon Sequestration Northern Great Plains Past production practices depleted soil carbon (some estimates place loss at 6.5 tons/ac) Technical limitations afforestation not feasible short growing season, semiarid conditions Considered low-cost provider of carbon sequestration

Issues with Previous Research Conversion of cropland to grass modeled after CRP-type management restrictions no revenue from sale of co-products (i.e., grazing or hay) not cost-competitive with other alternatives Operator characteristics treated in homogeneous manner differentiation by size, debt, management skill, profitability, and risk tolerance? does profitability influence carbon sequestration activities?

Issues with Previous Research Gains in carbon (C) sequestration purported to occur with “low” incentive levels likely overstated use of summer fallow quickly disappearing least-costly and most frequently cited land management change is already occurring use of conservation & no-till practices increasing adoption is taking place without C incentives above trends have implications for both baseline measurements and gains resulting from implementation of C payments

Goal Examine economic potential of carbon sequestration on cropland in the northern Great Plains, with emphasis on: valuing co-products from conversion of cropland to grass production differentiating response to C incentives by farm-level profitability including current level of tillage practices using site-specific data/information

Study Region

Scope Three possibilities Three profitability groups convert cropland to grass switch tillage systems keep existing practices Three profitability groups low 20%, average, high 20% Four tillage systems conventional (summer fallow) conventional (continuous crop) conservation no-till

Empirical Model Where: Pc = price of carbon ($/metric ton) R = rate of carbon sequestration (metric ton/acre) r = discount rate TC = transition cost of switching tillage systems i = tillage system (conventional-summer fallow, conventional- continuous crop, conservation, no-till, managed grass) j = profitability class and = producer net returns

Data/Modeling Crop and Grass Budgets Transition Costs all major crops hay production from managed grass projected yields forecasted prices specific field operations for each tillage system adjustments to yields, prices, and production costs to reflect profitability differences Transition Costs yield and cost adjustments in first 3 to 5 years

Data/Modeling C Sequestration Rates Tillage System mt/ac/yr conventional (summer fallow) 0.0 conventional (continuous crop) 0.04 conservation 0.0897 no-till 0.1495 managed grass 0.2835

Key Assumptions Producers “willing and able”, whole-farm enrollment Tillage practices proportionally distributed within profitability groups Farm policy and conservation programs unchanged Market-based carbon payments

Percentage of Planted Cropland Current Conditions Percentage of Planted Cropland Tillage Practice 2003 Projected (2024) Conventional (summer fallow) 4.0 Conventional (continuous crop) 16.8 Conservation 46.2 58.7 No-till 33.0 41.3

Summer Fallow Acreage, Study Counties, 1986-2003

Baseline Projections Elimination of summer fallow by 2010 Conditions Elimination of summer fallow by 2010 Continued adoption of conservation and no-till practices over next 20 years No carbon incentives Study region’s 1.1 million acres of planted crop land would sequester 121,000 metric tons (mt) of C annually (average) 2.4 million metric tons (mmt) of C over 20 years

Sequestration with C Incentives

Sequestration with C Incentives Payment Rate ($/mt) C Sequestered (mmt) Percentage Increase over Baseline 0 (baseline) 2.42 - - - 10 2.51 3.5 25 3.13 29.3 50 4.87 101.0 75 5.63 132.2 100 6.09 151.3 125 6.42 164.9

Changes in Producer Activities Low Profit Producers (control 15% of tilled land) Carbon Price ($/mt) Current Tillage 10 25 50 Conv-summer fallow grass Conv-continuous crop Conservation no change No-till

Changes in Producer Activities Average Profit Producers (control 56% of tilled land) Carbon Price ($/mt) Current Tillage 10 25 50 Conv-summer fallow conv. (CC) cons. till grass Conv-continuous crop no change Conservation No-till

Changes in Producer Activities High Profit Producers (control 29% of tilled land) Carbon Price ($/mt) Current Tillage 10 25 50 75 100 Conventional-CC no change cons. till grass Conservation no-till No-till

Discussion Substantial gains in C sequestration over baseline levels not until C was $50/mt To some extent, activities shown to occur as a result of C incentives in other studies have already occurred elimination of summer fallow adoption of conservation and no-till practices Segregating producers by profitability large acreage shifts based on ‘average’ profitability measures were avoided (e.g., C=$25/ton, low profit, switch to grass; average profit, switch tillage systems; high profit, no change)

Discussion Treatment of co-products for converting cropland to grass has broad implications Conversion to grass can be economical when co-product revenues are included (allowed) Permanent (managed) grass represents greatest technical potential in some regions Sufficient livestock industry present to complement additional forage in most regions

Conclusions Producer profitability is likely to influence some land management decisions C-friendly practices are being adopted in the absence of C incentives Managed grass could provide a viable alternative to crop production

Conclusions Economic assessments more valuable when using site-specific data Results sensitive to key parameters C sequestration rates Input and product prices Transition costs

Conclusions Gains in C sequestration were shown to occur with low incentive levels, but at levels less than previously suggested Spring wheat producing regions of the northern Great Plains can offer low-cost CO2 mitigation through C sequestration

Contact Information Dean Bangsund 701-231-7471 bangsund@ndsuext.nodak.edu Larry Leistritz 701-231-7455 lleistri@ndsuext.nodak.edu Reports from NDSU Dept. of Agribusiness and Applied Economics can be obtained by contacting Carol Jenson 701-231-7441 (office) 701-231-7400 (fax) cjenson@ndsuext.nodak.edu or access the following web site: http://agecon.lib.umn.edu/

For Information on the PCOR Partnership Contact: Edward N. Steadman Senior Research Advisor PCOR Partnership Project Manager Energy & Environmental Research Center 701-777-5279 esteadman@undeerc.org Visit the PCOR Partnership Web Site at: http://www.undeerc.org/pcor/