Focus on the Environment: Carbon sequestration incentives for Ontariofarmers are likely to improve under the new rules

Sunday, October 5, 2008

Increased farm income could provide the impetus to get Ontario's farmers and ranchers actively engaged in helping meet the province's own targets and the national obligations within the Kyoto Protocol.

by PETER ION

As Environment Canada's Pilot Emission Removal Reduction and Learning (PERRL) project effectively came to the end of its allotted course at the end of 2007, there have been valuable lessons learnt about the viability of agricultural sector involvement.
In particular, it has highlighted the role of the offset aggregator, which administrates and certifies the project and brings to market a collective number of farmers, ranchers and landowners who manage land in parcels that might otherwise prove economically inefficient in terms of making a difference.

Ontario's involvement in the PERRL pilot was relatively minor. Of approximately 200 Canadian farmers involved in the scheme, only four were based in Ontario. With rules limiting participation to a maximum of 247 acres, Ontario's allotted acreages were closer to the 100-150 acre range. Cash-cropper Barry Newcombe of Cookstown (of the Innovative Farmers of Ontario consortium) set aside 155 acres and eventually received payment in the order of just under $2 an acre for his efforts. He and others found that administrative overhead can prove a burden when dealing with multiple small-scale holdings.

Canadian cropland can sequester 22 million tonnes of carbon annually, and grazing land could account for an additional three million tonnes. The opportunities and incentives are going to improve under newrules. Under current Chicago Climate Exchange (CCX) rates of exchange for CO2, owners of average-sized 225-acre farms in Ontario could generate several hundred dollars annually (based on $4 per tonne on the CCX) in soil offsets if they remain fully compliant. This is a significant increase in the amounts raised for an equivalent size farm in the PERRL Initiative.

This kind of realized farm income should provide the impetus to get Ontario's farmers and ranchers actively engaged in helping meet the province's own targets and the national obligations within the Kyoto Protocol.

Don McCabe, vice-president of the Ontario Federation of Agriculture, is a member of the Ontario Provincial Offsetting Group. He believes that, other than the economics of the operation, the key issue is one of risk to the farmer. He says that it is critical for the producer to know where his or her liability ends and, in this respect, the contract information in the pilot scheme has been less than clear. Questions surrounding liability should get ironed out in the design phase of any future scheme. More on this later.

McCabe states that other than the greater average farm size in the Prairies, Ontario may also suffer marginally from a disadvantage in that the province experiences a higher rainfall regime, potentially removing sequestered carbon from the soil through leaching.

In Alberta, soil offsetting has accounted for 47 per cent of the provincial targetted reductions in greenhouse gas emissions and is the highest contributor (greater than landfill gas reductions). In the absence of an organized system, as exists in Alberta where 13 aggregators operate to serve the marginal farmers, McCabe sees offsetting as one of a number of farm measures that can be adopted, citing biodigestion and nutrient management as key contributors.

The practice of conservation tillage is now recognized as a process that can contribute and farmlands from the Rockies through to Ontario and Quebec are participating.

Under the new rules, the issuance rate of soil exchange offsets is conditional upon soil type. Brown and dark brown soil zones qualify at 0.2 metric tonnes per acre. A rate of 0.4 metric tonnes per acre applies to black and grey soil zones. Committing to maintain soil carbon storage realized through grass cover that has been in place since 1999 also earns offsets at 0.4 metric tonnes per acre.

All participants are required to place 20 per cent of their earned offsets into a reserve pool that is released after all compliance criteria are met as of late 2010. Not quite a "terminal bonus" for long-term policy-holders, but not dissimilar.  

In the West, Flatlander Environmental Services of Alberta and Sea-Green of Saskatchewan are two organizations which deal in Exchange Soil Offsets registered through the Chicago Climate Exchange. If a landowner operates on land generating less than 12,500 metric tonnes of CO2-equivalent per annum, then an aggregator can act on their behalf to "pool" the emissions reductions arising from adopting compliant agricultural practices with other qualifying projects and submit them to the CCX. Once registered and validated, the offsets are issued on the basis of mitigation tonnage realized during the years 2007 through to 2010 inclusive, each offset representing 100 metric tonnes of CO2-equivalent.

The new scheme provides for trading of offsets on the Chicago Climate Exchange, and what constitutes "minimum tillage" is defined to the inch in terms of size of the opener and the furrow spacing. The aggregators are there to specify what types of implement are acceptable.

Crop rotation does not render land ineligible for offsets. Ontario-based research has recently demonstrated that decreases in corn yield due to reduced or no-till tillage practices could be eliminated by rotation. With a zero-till system, better than average results were obtained when corn followed soybeans. However, corn grown under this treatment appeared to be negatively affected, perhaps due to allelopathy, when grown following alfalfa or red clover.

However, for short-term rotations, higher corn yields were obtained when the previous crop was not corn, provided that the soil was turned with either a mouldboard plow or a chisel, implements specifically disqualified within the offset scheme. Participating farmers and ranchers will need to know exactly what they are getting into before they put their machinery into the fields. In true Kyoto style, the scheme engages teams of independent verifiers to assess compliance in this area.  

Despite the greenhouse gas potential of methane, manure management is not discouraged within the soil offset scheme (something that the PERRL pilot project was opposed to). The reasons are clear, given the known gains to crop productivity. In a University of Alberta soil quality study near Edmonton, it was found that, even after removal of 20 centimetres of topsoil (scalping), the addition of manure increased water infiltration by 10-359 per cent and crop yields by as much as 371 per cent over the non-manure treatments.

Alberta arable farmers applying over 500 tonnes of manure annually are now required to undertake detailed soil analysis under the 2004 Agriculture Operations and Practices Act, therefore experiencing a reduced administrative burden in participating in the offsetting scheme (as they will already know their key soil data ).

Unlike emissions reductions projects which are permanent, biological sinks such as soil are characterized as having a greater element of uncertainty. Carbon sequestration is reversible through recommencement of tilling practices, not to mention the additional risk of loss to wildfire. This presents the significant risk to the landowner that McCabe was talking about. A proposal favoured by the Saskatchewan Soil Conservation Association involves the introduction of temporary emissions reductions credits (TERCs), in which ownership of the offsets is vested in those responsible for the management of the land.

In the summer of 2003, the SSCA introduced the idea of a "five-year lease" on the offsets as a means of mitigating the risk of buying into irreversible long term contracts on parcels of land. These offsets would be coming up for renewal or resale this summer. As fully 37 per cent of Canada's farmland is currently rented, the additional risks of change in ownership could be hedged a little.

In principle, under the TERCs scheme, blocks of offsets would be leased for a (nominal) five-year term, with eligibility for participation based upon evidence of adoption of best management practices such as conservation tillage.

A producer who adopts these practices that create offsets at any point prior to five years before a commitment period (as per the Kyoto Protocol) would receive immediate recognition and be issued with TERCs for trading during that commitment period. This way the "early adopters" would not be disadvantaged. If these practices are still in place and the sink is intact at the end of the commitment period, they could be reissued and potentially leased again for another five-year period.

When a sink is lost, no new TERC can be issued, nor can existing TERCs be reissued, so ensuring atmospheric integrity. The market would generate incentives to both create and maintain sinks.

With enough farmers and ranchers participating and enough large emitters buying, there is probably sufficient liquidity to get the scheme off the ground (or rather into it!). Unlike last year's poorly received and generally underwhelming emissions trading scheme exclusively for Alberta entities, the soil exchange offsetting program is intended for a nationwide application.

More than 200,000 farmers currently work literally millions of land parcels. Significantly, the carbon brokers or aggregators are keen to point out that these are "carbon compliance" offsets rather than any emissions trading unit (with its associated perception of speculative investment). BF

Peter Ion is a Vancouver-based technical writer.