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0309 ANM: Trying to understand the new carbon market? Now is a good time to start...

Scott Subler Published on 24 April 2009

Carbon credits – their creation, how they will impact the struggling economy – are not only generating buzz and discussion online, but action on several fronts. Washington State’s governor has proposed a statewide, cap-and-trade; California and other states have either enacted or are currently evaluating similar legislation; and, for the first time, a proposed federal budget includes a revenue line item generated from a national cap-and-trade system seeking to limit and reduce greenhouse gas (GHG) emissions.


Many Fortune 500 companies have joined carbon market platforms like the Chicago Climate Exchange, where they have voluntarily entered into legally binding agreements to reduce their own GHG emissions. While it will take time to see the final shape of all of these actions, the federal enactment of linking profit and environmental responsibility is a real outcome. What could the results mean to the dairy community? Agricultural Secretary Vilsack recently stated, “We’ve got to be at the table, we’ve got to be engaged in the conversation…because we have a tremendous opportunity here, a tremendous opportunity – if we seize it.”

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Dairy farmers do have a remarkable opportunity – if they seize it!
Cap-and-trade systems look to the agricultural community to be part of the solution. A national system will place an ever- tightening constraint upon the greenhouse gases emissions of the U.S. While it is feasible to produce an inventory of all U.S. GHG emissions, as the EPA does, a cap-and-trade system does not look to limit every person or business in the country. It’s designed to place an overall cap on U.S. emissions, under which limits are placed on each of the major emitters, such as power companies and large industrial facilities. Each year the cap is reduced, so that the country’s overall emissions would actually reduce over time.

The business decisions of the large emitters in a post cap-and-trade world would always have to take into account how their production levels and growth needs will impact their GHG emission levels. They could enact their own emission reduction projects but many companies may not be able to economically meet their limits within the given timeframes: utility companies often have to go before regulatory agencies or hold public hearings before enacting such projects – affecting the amount of time it takes to move a project out of planning into a place where real reductions can occur.

Other companies may be in a growth mode because people are actively choosing their products and need to expand their manufacturing capacity in the face of tightening emission limitations; other industries might not have available technologies to meet their reduction needs. In these examples, the regulated entities need help to meet their GHG emission reduction limits; cap-and-trade systems are set up so that those entities have the ability to trade cash for the carbon credits they need to meet their limits.

Dairy farms have the ability and access to technology to reduce their GHG emission more quickly and economically than some of the large emitters. The emission reduction project initiated on that farm, once verified and certified into carbon credits, could then be traded to the power company trying to meet both the needs of the grid and their GHG constraint. The net result is a reduction in potent and harmful greenhouse gases being emitted into the global environment.

How can my operation benefit from and get involved with carbon credits?
In January’s and March’s Ag Nutrient Management issues, the guiding principles to creation of carbon credits were explained in detail, but here is a quick recap:

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Carbon credits are a commodity representing a metric ton of carbon dioxide that was either prevented from entering or removed from the atmosphere. The universal measurement for all greenhouse gases is in terms of carbon dioxide (CO2). In terms of our monetary system: CO2 is the dollar bill, other GHG equate to five-dollar or thousand-dollar bills. Different denominations and implied value are evaluated in terms of the universal measurement (five-dollar bill equals five one-dollar bills).

An entity can only gain financially from carbon credits if it is enacting GHG emission reduction projects considered to be above and beyond “business-as-usual” for its industry.

A dairy farm can benefit from carbon credits directly when its current business practices are altered to reduce its GHG emissions. One method involves changes to manure management practices that capture and destroy methane emissions from the farm. A very simple GHG emission reduction project that is currently accepted as beyond “business-as-usual” is to cover an existing manure lagoon. The methane produced during normal anaerobic activity and previously released into the atmosphere is now captured and fed into a gas collection system that either flares the methane into a less potent gas (CO2) or into a system that combusts the methane as, say, an engine’s renewable energy source. This emission reduction project lays the foundation for the carbon credits and a new revenue source for the farm.

The future of carbon credits?
First, you must understand that there will be a future for offsetting credits or carbon credits. To date, the U.S. has been operating in a voluntary fashion, but that fact is changing. A Northeastern regional mandatory cap-and-trade system known as RGGI, the Regional Greenhouse Gas Initiative, is moving into its compliance stage this year. States outside of this region are looking at either enacting a cap-and-trade framework or regulations surrounding greenhouse gas emissions. A federal mandatory cap-and-trade system is in the foreseeable future. So the U.S. carbon world of December 2008 will not resemble December 2009, 2010 or 2011.

The dairy community can become a large contributor to the new landscape by providing the offsets or carbon credits. The farmer gains the direct benefit of a new revenue source and the indirect benefits associated with different manure practices such as odor control or elimination, rainwater diversion and a creation of a new renewable energy source. An alternative, of course, is for the dairy industry to simply do nothing and ultimately be left behind while other industries, such as landfills, move into the marketplaces and fulfill the large emitters’ needs. But I don’t think that’s what Secretary Vilsack had in mind. ANM

Dr. Scott Subler
President, Environmental Credit Corp

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