The question most farmers ask when a discussion of carbon credits comes up is “How much will I be paid for my credits?” The first question farmers should ask is “How many carbon credits will my farm create?”
All farmers understand that income generated on a farm results from production multiplied by price, less cost of production and marketing. Carbon offset credits are a commodity just as grain or livestock are. As a result, the dollar value of carbon credits created on the farm depends upon the same factors: the cost of creating and marketing carbon credits, the market price of carbon credits, and, the factor most farmers do not consider, the number of carbon credits produced or created by a specific management practice.
A lot has to do with the program in place in your province or state. A dryland farmer in Northeast Montana practicing zero tillage earns 0.32 tons of carbon credits per acre. Just across the border in Saskatchewan, a zero tillage farmer can obtain 0.2 tons per acre of credits in the voluntary market. And if you go west into the brown soils of southeast Alberta, the same tillage practice generates only 0.088 tons per acre of credits if those credits are sold into the regulated Alberta market.
Differences are even greater for carbon credits on native pasture. The regulated Alberta market says no carbon credits are generated on native pasture, yet Montana ranchers can earn up to 0.4 tons per acre of carbon credits if they follow a managed grazing plan.
PROTOCOLS DE TERM INE THE CREDITS YOU PRODUCE
Despite what some unscrupulous aggregators may be saying, each farm follows the same rules and gets the same credit for specific practices. Within each province, there is a predetermined, fixed value for carbon credit creation. Environment Canada’s publication “Turning the Corner: Canada’s Offset System for Greenhouse Gases,” says carbon credits must be “real, incremental, quantified, verified, and unique.”
Before carbon credits can be recognized and sold or traded, they have to meet these five criteria. “Real” means scientific study has identified a specific action or management practice, which when implemented results in a net reduction of greenhouse gases. “Incremental” means the reductions from the action or management practice must exceed any legally mandated levels and or climate change incentives. “Quantifiable” means there are sci-
entific methods available to actually measure reductions claimed. “Verifiable” means all records pertaining to the creation of carbon credits must be made available for review of accuracy by an independent third party. “Unique” simply means carbon credits arising from any action can only be sold once. You cannot sell the same carbon credits to both the voluntary and mandatory systems, nor can you sell the same credits into two different markets or regions.
Some regulated markets such as Alberta have added sixth criteria: “Scope.” That means carbon credits must have been created in a specific geographic region for them to have value in the regulated market. For example, to be able to sell carbon credits into the regulated Alberta market, those credits must have been created in Alberta.
In a regulated carbon market, strict procedure must be followed to insure carbon credits meet all five or six criteria. First, a “Quantification Protocol” has to be developed. What this means is that any person or organization claiming carbon credits are created by a specific action or management practice must complete a full scientific study of the action identifying and quantifying all greenhouse gas sources, sinks, and reservoirs. As well, the impact the action has on any greenhouse gases produced before or after the action takes place must also be considered. To get an idea of the complexity of a quantification protocol, the Alberta Quantification Protocol for Tillage System Management is 41 pages long. You can actually review this protocol online at http://environment.gov.ab.ca/info/library/7918.pdf
In the case of tillage-created carbon credits, a farmer is strictly limited to the type of tillage equipment that can be used, number of passes per season, and even the width of the openers. Failure to meet these standards means carbon credits are not created, or even worse, a carbon credit reversal takes place and the farmer may be liable for repaying any moneys already received from the sale of carbon credits.
The Alberta tillage protocol also distinguishes between the credits created in the Brown and Black Soil Zones, so living on one side or the other of the line which the protocol has determined to be the division between soil zones may mean a farmer may have some land which will only generate half of the credits of land on the other side of this line.
Alberta has protocols for many practices. Tillage is just one of them. Once a protocol has been developed, tested, and opportunity is given for public scrutiny of it, the protocol developer applies to the carbon trading authority for registration of the protocol. Once registered, this protocol defines the management practice a producer must follow in order to create a fixed number of carbon credits.
YOU ALSO HAVE THE VOLUNTARY MARKET
You don’t have to sell into the regulated market. If you don’t like the detailed requirements of the regulated market, check for opportunities in the voluntary market. You’ll find many private organizations that will verify your credits and then pay you for them.
In voluntary carbon markets, there are no government reviews or regulations that guarantee the validity of carbon credits. It is seller and buyer beware. As a result, voluntary carbon markets rely on carbon offset standards to certify the carbon credits as real.
Certification of carbon credits by a standards association is similar to the registration of a quantification protocol in a regulated carbon market. The biggest difference is that carbon traders in a specific geographic area are not limited to complying with any particular standard.
A number of associations certify carbon credits. Green-e Energy, Environmental Resources Trust, Voluntary Carbon Standard, Gold Standard, Greenhouse Gas Protocol, and Scientific Certification Systems are a few examples.
It is important for growers to realize that while certification by any of these associations means the carbon credits are “real,” there can be differences in the number of carbon credits created and the practices for creating those credits can vary between standards association. If selling into a voluntary carbon market, it is critical you compare the amount of carbon credits created and the management practices you must follow.
It’s worth checking out your options before selling credits. Do the numbers to see if you can make more money selling into a higher quality regulated market with more stringent requirements or into the higher yielding (carbon credits per acre) voluntary market. You must compare the carbon credit yield potential available from buyers in both markets as well as carbon credit prices in both markets.
If you are thinking of selling carbon credits, find out exactly what management practices must be followed and the number of carbon credits your actions will create. This information is every bit as important as the price of carbon credits.
Gerald Pilger farms near Ohaton, Alta. Email
him at [email protected]