Canadian producer perspectives on agricultural soil offsets:

Issues, Opportunities and Risks

Blair McClinton, PAgSaskatchewan Soil Conservation Association

Indian Head, SK, Canada

Fearless Prediction:

Maximizing sink potential will depend on producers taking action!

Overview

• 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

Maintenance Liability

Repurchase

Credits

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

Baseline

15First Counting Period Baseline

10

Ratification Baseline

5

00% Baseline

BAU OffsetsGovn't of Canada

-5

-7 *Marrakesh Tonnes (source) 1990 Basline

1990

1993

1996

1999

2002

2005

2008

2012

2015

Years

Mill

ion

Met

ric

Ton

nes

Tradable?

Tradable?

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

y = 0.0592x

$0.00

$20.00

$40.00

$60.00

$80.00

$100.00

$120.00

$140.00

$0.00 $500.00 $1,000.00 $1,500.00 $2,000.00 $2,500.00

Urea ($/tonne)

Org

an

ic N

va

lue

($

/to

nn

e C

O2

e)

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!