Transcript Canadian Producers Perspectives on Agricultural Soil Offsets: Issues, Opportunities and Risks

Canadian producer perspectives on
agricultural soil offsets:
Issues, Opportunities and Risks
Blair McClinton, PAg
Saskatchewan Soil Conservation Association
Indian Head, SK, Canada
Fearless Prediction:
Maximizing sink potential will depend
on producers taking action!
Overview
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Introduction
Permanence
Additionality
Policy Interactions
Transaction Costs
Questions to ponder
Introduction
• Saskatchewan has the highest level of no-till
adoption in Canada (>60%)
• SSCA first approached on carbon trading - 1993
• Policy development for Ag soil sinks
• Helped setup soil carbon benchmark
measurement project
• Established 1st pilot carbon trade in Canada
Principles
• Atmospheric integrity
– Permanence
– Leakage
• Clear ownership
• Value must accrue to people taking action
Permanence
• Biological sinks can be reversed
– Some debate on how sensitive sinks are to
reversal events
• Permanence policies revolve around
liability
– Who will carry the liability?
Permanence Liability Cycle
Sell Credits
Repurchase
Credits
Maintenance
Liability
Canadian Approaches
• Permanent credits with liability period
– Liability transfers to seller for up to 30 yr?
– Problem: not workable for farmers
• Temporary credits
– Function like a lease
– Liability remains with emitters
– Problem: emitters don’t want liability either
Other Approaches
• Permanent Credit with Assurance Factor
– Used in Alberta regulatory system
– Built-in discount to account for future losses.
– Risk sharing between farmers and government
• Private Insurance
Additionality
• Establishes baseline for business as usual
practices
Additionality = Multiple Pools
• Creating separate pools would be difficult
to administer and very expensive to monitor
• Creates Perverse Incentive
– Rewards late adopters
– Would create have and have not producers in
the same community
– Increases value of non-creditable land
– Incentive for reversal events
Canadian Solution?
• Create one pool with adoption rate discount
– Administratively simple
– But reduces incentive and may reduce
participation
• Periodic baseline reassessments
– Increased discount rates
25
Business As Usual (BAU)
20
Tradable?
15
First Counting Period Baseline
Tradable?
10
Ratification Baseline
5
0
0% Baseline
BAU Offsets
Govn't of Canada
-5
Years
2015
2012
2008
1999
1996
1993
2005
1990 Basline
*Marrakesh Tonnes (source)
2002
-7
1990
Million Metric Tonnes
Baseline
Policy Interactions
• Permanence and additionality –
contradictory
– Permanence says risk of losing carbon
– Additionality says no risk of losing carbon
• Both policies discount carbon value and
increase transaction costs
• May mean soil carbon effectively has no
value at the farmgate
Competing Interests
Figure 1. Value of one tonne CO2e of soil organic
nitrogen as a function of Urea price
Organic N value
($/tonne CO2e)
$140.00
$120.00
y = 0.0592x
$100.00
$80.00
$60.00
$40.00
$20.00
$0.00
$0.00
$500.00
$1,000.00 $1,500.00 $2,000.00 $2,500.00
Urea ($/tonne)
Additionality Solutions?
• Look to “Net-Net” accounting rules from
Marrakesh Accord
• Environmental baseline
Transaction Costs
• Farmers likely too small to justify
individual credit sales
• Aggregation businesses
• Carbon banking or pooling
• Ownership
Verification/Validation Costs
• What level of verification is cost effective?
– Aggregator data management
– Farm Inspections
• Future possibilities
– Remote sensing
Questions to Ponder
• How can we resolve contradiction
between permanence and additionality?
• How can we minimize transaction costs
to maximize value at the farm?
Solutions to these questions will help
make Ag soil offset trading a success!