March 26 (Bloomberg) — Rex Woollen grows corn and soybeans. In 2007, the Wilcox, Nebraska, farmer started cultivating a new commodity: carbon.
By not tilling his 800 acres, Woollen by some estimates keeps 470 tons of carbon per year in the ground and out of the atmosphere. Because of that, Woollen gets carbon credits he can sell on the Chicago Climate Exchange. At first, neighboring farmers were skeptical.
“They called me a tree-hugger,” Woollen said. “Then I showed them my first check.”
Woollen gets about $3,000 a year from the climate exchange’s carbon-trading pilot program. While it isn’t much, to Woollen it hints at bigger potential profit as Congress considers mandatory, nationwide greenhouse-gas limits.
President Barack Obama and Democratic leaders in Congress back a “cap-and-trade” system to ease global warming by making companies obtain government-issued pollution permits. As allowable emissions drop over time, companies would have to reduce pollution or buy extra allowances. Businesses adopting clean-energy methods like wind or solar power could sell permits for a profit.
Some farm-state lawmakers and agriculture groups want to let farmers like Woollen create a separate source of carbon allowances. Farmers who use eco-friendly farming techniques or plant trees would earn so-called offsets to sell alongside government permits on carbon markets.
Rural Votes Crucial
Agricultural offsets may be crucial to attracting enough votes from rural lawmakers to pass climate-change legislation, said Representative Stephanie Herseth Sandlin, a South Dakota Democrat. “We have to insist that agriculture has a seat at the table,” she said.
Republican congressional leaders have likened Obama’s cap- and-trade proposal to a tax increase on energy, and the plan may pit coal-producing states against other areas. Farm organizations are also divided.
The American Farm Bureau Federation, the biggest farm group, has opposed cap-and-trade plans, saying they would raise fuel and fertilizer costs. The National Farmers Union likes the idea and is lobbying for a slice of the carbon market.
In ideal circumstances, farms have the potential to capture one-third of the carbon pollution now produced by the U.S., said Rattan Lal, director of Ohio State University’s Carbon Management and Sequestration Center. Obama has said that by 2050 he wants to cut emissions by 80 percent from 1990 levels.
‘New Income Source’
Agriculture Secretary Tom Vilsack has called carbon “a new income source” that could “change the old ways of supporting farms.”
At this point, Climate Exchange Plc’s Chicago Climate Exchange runs a pilot program that lets farmers supply credits for sale to companies, such as Ford Motor Co. and American Electric Power Co., which have agreed to voluntary emissions limits. Its sibling Chicago Climate Futures Exchange last November began trading futures that can be used if a mandatory cap-and-trade law is enacted.
The North Dakota Farmers Union is the climate exchange’s biggest aggregator of farm-related carbon credits, with 3,900 participating farmers who will get about $9 million this year, Farmers Union President Robert Carlson said.
U.S. greenhouse-gas trading would skyrocket if Congress adopts a program like the European Union cap-and-trade system, which started trading carbon permits in 2005. The Chicago climate and futures exchanges together handled credits for 28.8 million metric tons in February, compared with a record 447 million metric tons at London’s European Climate Exchange Ltd.
Higher Costs
While farm-state votes may make or break a cap-and-trade bill, proponents face questions about whether agricultural offsets reliably cut greenhouse gases, and whether carbon’s price will rise enough to justify farmers’ costs.
By leaving land undisturbed, no-till farming keeps decaying organic matter in the soil so that carbon produced by decomposition isn’t released into the atmosphere. It also requires less machinery use, cutting fuel consumption.
No-till farmers may get lower yields along with lower expenses, so fuel costs and commodity prices influence tillage decisions. Agriculture Department research in 2007 said no-till corn farmers could save $83 per acre, enough to make up for crop yields that fell by 23 bushels per acre.
Farm Bureau President Bob Stallman said a cap-and-trade system, on balance, would probably hurt farmers by raising their costs. He would prefer greater government support for ethanol, which burns more cleanly than gasoline.
Defeat the Purpose
Some environmentalists, including the Sierra Club, say offsets may let companies buy their way out of pollution caps. Allowing offsets in a cap-and-trade system also requires some way to verify that farm practices genuinely cut emissions.
“If companies are buying offsets that aren’t real, we’re really defeating the purpose of climate-change legislation,” said Craig Cox, Midwest vice president for the Environmental Working Group.
Dow Chemical Co. and General Electric Co. are among companies that have backed the idea of offsets to help companies comply with carbon caps while working to curb emissions.
“You need offsets as a bridge,” said Graeme Martin, manager of business development for environmental products at Royal Dutch Shell Plc’s Shell Energy North America.
Jumping into the carbon market wasn’t much of a gamble for Woollen, he said. A self-described “true believer” in the dangers of climate change, Woollen, 61, already was practicing no-till farming when the carbon exchange opened. With no new equipment to buy, he said selling carbon credits was an easy decision.
Wes Niederman, 49, was also a no-till farmer when he joined the exchange three years ago. A North Dakota Farmers Union board member, he made about $1,500 last year from carbon credits.
“I’m getting that for doing nothing out of the ordinary,” Niederman said.
To contact the reporters on this story: Lorraine Woellert in Washington at lwoellert@bloomberg.net Alan Bjerga in Washington at abjerga@bloomberg.net .