Carbon as Commodity

Carbon as a Commodity: Options for Rangelands : 

Carbon as a Commodity: Options for Rangelands Society for Range Management 56th Annual Meeting, Casper, Wyoming February 3rd, 2003. Siân Mooney, Ph.D. Dept. Agricultural and Applied Economics University of Wyoming

Road map : 

Road map How has C become a commodity? What market activities are in the US? What are the trading rules? What is the market price? What does it take to compete? Who are the competitors?

Why sequester soil C? : 

Why sequester soil C? Kyoto and other international agreements Efficient way to reduce GHGs? Co-benefits of improved land use and management? Help finance adoption of more sustainable production systems?

US Trading Initiatives and Activities : 

US Trading Initiatives and Activities Chicago Climate Exchange www.chicagoclimatex.com National Carbon Offset Coalition www.nationalcarbonoffsetcoalition.org Commodity brokerage firms Natsource Cantor Fitzgerald Consultants State Initiatives

Biophysical Potential to Sequester C in US Grazing Lands : 

Biophysical Potential to Sequester C in US Grazing Lands Total biophysical potential 29.5 - 110 million metric tons C/year Source: Follett, R.F, J.M. Kimble and R. Lal. 2001. The Potential of US Grazing Lands to Sequester Carbon and Mitigate the Greenhouse Effect

How much is C worth? : 

How much is C worth? No well defined market in the US Prices for verifiable credits have ranged between $1.50 to $12/MT C Likely that if trading is legitimized these credits would have more value Eventual market prices will be determined by the interplay of supply and demand

Demand and Supply Factors : 

Demand and Supply Factors Demand Domestic GHG policy International GHG policy Supply Cost of generating credits Costs of credit generation in other industries e.g. forestry, crop land

How to generate C credits? : 

How to generate C credits? Rules of the game not set Potential rules Additionality – only get credit for any carbon sequestered in soil that is ADDITIONAL to what you sequester with current practices Likely you will need to change practices from “business as usual” to gain any credits

Example : 

1. Currently engaged in X on an acre of land Rate of soil C sequestration is 0.1 MT/year This is “business as usual” 2. Switch to Y on that acre Rate of soil C sequestration is 0.5 MT/year Now you have a change from “business as usual” 3. Carbon available for credit sales = 0.5 – 0.1 = 0.4MT/year Example

Example continued : 

Example continued unlikely to receive credit for existing practices these result in no NEW carbon sequestered

Carbon Economics: when to change practices to generate carbon credits? : 

Carbon Economics: when to change practices to generate carbon credits? Assume: Contract pays $p for each MT of additional C/ac/yr Change in management practice provides C MT/ac/year Total payment = $p* C Enter contract if: o - s < $p C Cost of producing each credit < Credit price

Cost from other sources (1) : 

Cost from other sources (1)

Costs from other sources (2) : 

Costs from other sources (2) Source: Antle, J., S. Capalbo, S. Mooney, E. Elliot and K. Paustian. 2002. A Comparative Examination of the Efficiency of Sequestering Carbon in US Agricultural Soils. American Journal of Alternative Agriculture 17(3):109-115

How does range compete? : 

How does range compete?

Other possible contract types : 

Other possible contract types CRP type contract Payment for practice Payments unrelated to quantity of carbon sequestered

Other market/contract issues : 

Other market/contract issues Measurement/monitoring and verification Size of contract units Contract term and non-compliance Selling carbon or carbon sequestration services?

Other issues : 

Other issues Many practices have other co-benefits Wildlife Water Change practices costly initially but in some cases returns increase after a short period Carbon credit payments could provide a financial bridge for these changes

Conclusions/implications : 

Conclusions/implications Value of credits depends on demand and supply Trading rules not set Range competitiveness depends on Ability to sequester additional C at low cost Could result in win-win situations with many additional co-benefits Ability to compete will vary spatially Like any market – not everyone can participate

For more information contact: : 

For more information contact: Siân Mooney Dept. Agricultural and Applied Economics University of Wyoming Laramie, WY 82071 E-mail: smooney@uwyo.edu Phone: (307) 766-2389 Many photographs by John Kimble.