1. Agriculture’s Role in Climate Change Mitigation July 18, 2007 (revised) Daniel A. Lashof, Ph.D. Science Director Climate Center Natural Resources Defense Council

2. Introduction Agricultural solutions are one of many approaches (“wedges”) needed to reduce emissions of heat-trapping gases Agricultural solutions are one of many approaches (“wedges”) needed to reduce emissions of heat-trapping gases Agriculture will play a key role in U.S. and global climate solutions Agriculture will play a key role in U.S. and global climate solutions Bioenergy production Bioenergy production Increased soil carbon sequestration Increased soil carbon sequestration Wind energy Wind energy A mandatory Greenhouse Gas (GHG) cap will bring long- term monetary value for carbon sequestration A mandatory Greenhouse Gas (GHG) cap will bring long- term monetary value for carbon sequestration Reliable methods are needed to measure, verify, and account for the climate benefits of agricultural practices Reliable methods are needed to measure, verify, and account for the climate benefits of agricultural practices Potential for Co-benefits Potential for Co-benefits

3. NRDC Stabilization Wedges

4. Emission Reduction Shares Preliminary model results indicate that soil and forest carbon sequestration plus reductions in non-CO2 gases could supply ~20% of cumulative reductions Carbon Sinks & Non-CO2 Reductions 18%

5. Criteria for Sound Policy Does it solve the problem Does it solve the problem Does it change investment patterns Does it change investment patterns Does it provide incentives for promising solutions Does it provide incentives for promising solutions Does it protect consumers, displaced workers, and impacted communities Does it protect consumers, displaced workers, and impacted communities

6. Mandatory v. Voluntary Markets Chicago Climate Exchange (CCX) voluntary market Chicago Climate Exchange (CCX) voluntary market Soil carbon credits Soil carbon credits Methane credits Methane credits Forestry credits Forestry credits 2007 CCX price of ~$4/ton CO 2 2007 CCX price of ~$4/ton CO 2 Equates to ~$2.25/acre for continuous no-till Equates to ~$2.25/acre for continuous no-till Value under federal mandatory “cap and trade” legislation anticipated to be 3-6 times greater Value under federal mandatory “cap and trade” legislation anticipated to be 3-6 times greater Mandatory cap ensures long term value Mandatory cap ensures long term value

7. Offsets v. Allocations Verifiable, certified GHG reductions Verifiable, certified GHG reductions Sold through market to covered sources Sold through market to covered sources Alternative to emissions reductions Alternative to emissions reductions Share of total allowance value Share of total allowance value Distributed based on climate benefits Distributed based on climate benefits Included in the cap Included in the cap Offsets for sequestration Allocation of sequestration allowances

8. Offsets v. Allocations Emissions Cap Total GHG Emissions Offsets Allocation Sequestration benefits Emissions Cap Offsets: Allocation : Total GHG Emissions

9. Offsets v. Allocations Offsets : Advantages Market-driven value Market-driven value Program size not limited by allocation Program size not limited by allocationDisadvantages Potential to weaken emissions reduction steps taken elsewhere Potential to weaken emissions reduction steps taken elsewhere Verification challenges Verification challenges Higher transaction costs than allocation Higher transaction costs than allocationAllocation:Advantages Quick launch with direct appropriations Quick launch with direct appropriations Use existing USDA channels Use existing USDA channels Integrate multiple criteria Integrate multiple criteria Lower transaction costs Lower transaction costs Greater environmental benefits Greater environmental benefitsDisadvantages Program size limited by allocation Program size limited by allocation Not market-driven Not market-driven

10. Challenges for Either Policy Setting the Baseline/Ensuring Additionality Setting the Baseline/Ensuring Additionality Who gets benefits? Who gets benefits? Measurement, Monitoring, and Verification Measurement, Monitoring, and Verification Accounting for non-permanence Accounting for non-permanence

11. Additionality Will the practices adopted provide additional sequestration of carbon Will the practices adopted provide additional sequestration of carbon Will incentives provided to farmers promote investment in practices that would not have happened without them Will incentives provided to farmers promote investment in practices that would not have happened without them

12. Additionality Based on Comparison Lands

13. Who Gets Benefits? Current contributors or only new adopters? Current contributors or only new adopters? Iowa No till- 5.17 million acres (23% of total Iowa farmland) in 2004, 2 nd in nation Iowa No till- 5.17 million acres (23% of total Iowa farmland) in 2004, 2 nd in nation Solution: Proportional additionality Solution: Proportional additionality

14. Measurement and Monitoring Carbon sequestration from no till farming and CRP programs would need to be monitored and verified Carbon sequestration from no till farming and CRP programs would need to be monitored and verified Field soil testing needed for offsets (Green-e Standard) Field soil testing needed for offsets (Green-e Standard) Practice-based accounting may be sufficient for allocation Practice-based accounting may be sufficient for allocation Ongoing monitoring needed to ensure replacement of any reversals Ongoing monitoring needed to ensure replacement of any reversals

15. Illustrative Aggregate Value to Farmers Allocation has higher carbon price because total emissions are lower Approach Carbon Price: $/ton Tons Carbon Aggregate value Allocation20 300 million (5% of allocation) $6 billion Offset10 430 million $4.3 billion

16. Illustrative Individual Value to Farmers Approach Carbon Price: $/ton Qualifying acres Sequestratio n benefit Total Income: price x tons – costs Allocation$20 (supply of credits restricted) 1000, 10% discount, practice based.9 ton/acre, 900 tons total, after discount $20 x 900 = $18,000 = $18,000 Offset$10 (unlimited supply) 1000, 40% discount, measurement based.6 ton/acre 600 tons total $10 x 600 = $6,000

17. CRP in Iowa Conservation Reserve Program- 1.9 million acres currently enrolled in Iowa 1.9 million acres currently enrolled in Iowa 1.15 million could be removed by 2009 1.15 million could be removed by 2009 CRP lands sequester 1-10 tons of CO2 per acre per year CRP lands sequester 1-10 tons of CO2 per acre per year

18. Individual Farm Income with a Carbon Cap

19. Farm Income and GHG Payments

20. Potential for Co-benefits Improved air and water quality Improved air and water quality Reduced soil erosion and improved soil fertility and productivity Reduced soil erosion and improved soil fertility and productivity Improved wildlife habitat Improved wildlife habitat

21. Conclusions Farmers will benefit from mandatory caps Farmers will benefit from mandatory caps Tighter caps mean higher carbon prices and higher net income Tighter caps mean higher carbon prices and higher net income Allowance allocation may offer advantages over offsets approach Allowance allocation may offer advantages over offsets approach Quicker start Quicker start Lower transaction costs Lower transaction costs Higher income Higher income Continued dialogue key to win-win solutions Continued dialogue key to win-win solutions