Farmers’ role in offset trading seen hindered

While the success of a domestic emissions market in Canada may depend on farmer involvement, “unresolved issues” in the development of such a market may keep farmers from getting involved.

That’s the observation in a new George Morris Centre report on emissions trading in Canadian agriculture, released Tuesday by the Guelph ag think tank.

Cher Brethour and Maria Klimas, the paper’s authors, note that agriculture is expected to play a significant role in providing “carbon sinks” to help offset Canadian greenhouse gas production. An emissions market allows polluting companies to pay farmers for practices that help sequester excessive atmospheric carbon in their fields.

“However, since
agricultural producer participation in domestic offset markets will be voluntary, the
success of emissions trading in Canada is heavily dependent on the level of agricultural
producer participation,” the researchers wrote.

Despite farmers’ apparent willingness to take part in a Canadian market, “the speculation is that participation by
agricultural producers in emissions trading will be limited due to unresolved issues, creating disincentives for producers. These issues include lengthy liability periods that impose uncertainty, high costs of supply relative to trading prices, and, potentially, high transaction costs.”

Based on reviews of pilot projects and systems elsewhere, Brethour and Klimas urge the developers of a domestic market to consider allowing shorter contract periods for farmers, reducing the length of liability.

Observers of such proposals have noted some farmers may balk at a contract that curtails what they can do with their land going forward — for example, if a contract presumes that a set amount of carbon will remain in a contracted field’s soil indefinitely. A contract may also require a farmer to purchase carbon credits to cover any shortfall in the amount of carbon sequestered by his or her project.

Buyers want longer terms

“Although temporary offsets attempt to
address this issue in part, it is not clear whether buyers of offsets will purchase
temporary credits, as it has been suggested that buyers want more stable and long-term credits,” the report noted.

Another barrier for farmers will be the high cost of implementing appropriate practices, relative to trading prices. Investment in technological innovation would greatly reduce that barrier, although such innovations may not be available in the near term, the researchers wrote.

Lastly, “although transaction costs are not currently an obvious deterrent to emissions trading, they contribute to the overall cost of supply faced by producers. Therefore, their reduction is a tangible and more immediate
step to encouraging a successful emissions trading market.”

Brethour already outlined the report’s points before its release, in a presentation last month at the Agriculture and Emissions Trading Summit in Queensland, Australia.

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