1. Improving Lives, Communities and the Environment Through Natural Resources Conservation Helping People Help the Land. Dr. Carolyn Olson WRI Workshop April 29, 2009 Challenges of Accounting for Soil Organic Matter in the Environmental Offsets Market

2. NRCS mission goals High Quality, Productive Soils Clean & Abundant Water Healthy Plant & Animal Communities Clean Air Adequate Energy Supply Working Farm & Ranch Lands

3. What we do Natural Resources Conservation Service (NRCS) Provides local assistance to help private non-federal land-owners conserve soil, water, air and other natural resources Works with partners to develop and refine planning tools for use by land owners, field personnel and others Helps translate basic research into useable technologies for our field personnel and clients Develops conservation plans Access to technical expertise and cost- share opportunities for land-owners

4. Mitigation of Greenhouse Gases and other Environmental Issues through Agricultural Soil Management Practices

5. USDA-NRCS Opportunities for Managing GHG and Carbon Sequestration Conservation Practices Targeted Incentives Cost-share Programs –EQIP, CIG grants –CSP –Wildlife Habitat Incentive –Wetlands Reserve –Grasslands Reserve –Healthy Forests Reserve http://nrcs.usda.gov/feature/outlook/Carbon.pdf

6. NRCS Assistance EQIP - Financial assistance for Practices: - To reduce agricultural impacts on air quality - Improve animal waste management - Irrigation systems to produce energy savings - Residue and tillage management EQIP – CIG (Conservation Innovation Grants): New and innovative technologies related to air quality, climate change and energy

7. NRCS Assistance WHIP (Wildlife Habitat Incentive Program –Implementation of vegetative practices CSP (Conservation Stewardship Program) –Enhance or implement new practices in priority air quality nonattainment areas –Soil quality enhancements –Energy conservation concerns: renewable fuel use, energy generation, recycling of oil products, energy audits

8. Options for Reducing GHG in the Agriculture Sectors Existing policies –Conservation programs (EQIP, CSP, CRP) –Renewable fuels standard –Encouraging private sector action Potential policies –Expand current policies –Regulation –Incentives (financed by an allowance auction or carbon tax) –GHG offsets (under a federal cap-and-trade) –Federal lands

9. International –UNFCCC Bali Roadmap – new negotiations for a post 2012 agreement –Upcoming International Meetings - COP 15 Federal –New initiatives 2007 Energy Independence and Security Act (EISA) –2008 Farm Bill Potential Agency Regulations (External) –EPA Rulemaking for GHGs United States Congress –Bills to be considered by the 111 th Congress in 2009 Stressors on USA Policies Related to GHGs

10. State and Private Sector Initiatives States in the USA –Western Climate Initiative (WCI) –Northeastern States – Regional Greenhouse Gas Initiative (RGGI) Private Sector Registries –Chicago Climate Exchange (CCX) –Numerous Voluntary Activities and Transactions Actions by Companies and Retailers –Demand for carbon neutral goods

11. Options for Environmental Regulation Traditional Command and Control –Regulatory agency sets standards Specific technologies (scrubbers) Performance (tons, tons/unit output) Cap and Trade –Regulatory agency sets overall objective (total allowable emissions) Allocates or auctions emission allowances Firms must obtain allowances in order to emit a pollutant –Firms can receive allowances, purchase allowances, or reduce emissions Cap and Trade with Offsets Unregulated firms can receive credits for reducing emissions Regulated firms can purchase offset credits to meet regulatory requirements (“offsetting emissions”)

12. Offset Markets Issues Issue: Permanence -- Will the carbon stay out of the atmosphere? –Potential solutions: Assign liability, continuous reporting, temporary credits, renting credits, Discounting Verifying the existence of carbon stocks is easier over time –Cumulative aggregation of carbon is easier to detect than year-to-year fluctuations

13. Offset Markets Issue: Leakage – Will the emissions move elsewhere? –Potential solutions: Discount credits, Exclude activities, Reporting requirements -- document that changes did not occur elsewhere, Accept it (adjust national goals)

14. Offset Markets Issue: Uncertainty –What if our estimates are wrong? –Potential solutions: Exclude categories or pools; Discount credits using an uncertainty factor, –One-tailed tests Accept it (recognize that uncertainty does not imply bias – laws of large numbers apply)

15. Offset Markets Issue: Additionality – Would the action happen anyway? –Potential solutions: Limit entry (categorical exclusions) –Exclude forests (EU) –Exclude deforestation (CDM) –Exclude forest management (several US registries) Comparison lands (Duke Protocol) Document justification, –Reporting requirements (CCAR) –Barrier tests Discount credits, –Proportional additionality Accept it (adjust national goals)

16. Offset Markets Issue: Baselines –What are we measuring benefits against? Options: Historic Base year/period carbon stocks; Base year/period carbon fluxes; The actions of others (comparison lands) Expectations Projections of business-as-usual; Projections of expected improvements; Projections of expected average business practice.

17. Additionality and Baseline Concerns Early Adopters – begin conservation practice(s) prior to base year or period –Exclude, limit or … SOM accumulation just beginning to provide most valuable per acre carbon offsets Penalizes the environmentalist/conservationist Promotes tendency to change conditions to realize rewards under new system – environmental costs may be high (unintended consequences)

18. Additionality and Baseline Concerns New adopters – begin conservation practice(s) during or after base year –May have previously abused their land, plowed out rangeland or converted pasture, grassland to cropland –Perverse environmental behavior rewarded –Per acre carbon sequestration offset value is years in the future

19. SOIL CARBON DYNAMICS IN RESPONSE TO TILLAGE SOIL CARBON (% OF ORIGINIAL) IN RESPONSE TO CULTIVATION SOIL CARBON 0 100 PLOWING years 50

20. SOIL CARBON DYNAMICS IN RESPONSE TO TILLAGE SOIL CARBON (% OF ORIGINIAL) IN RESPONSE TO CULTIVATION SOIL CARBON 0 100 PLOWING PERENNIAL VEGETATION years CONSERVATION TILLAGE 50

21. Points to Consider Additionality and leakage can be addressed at the project-level or in setting national goals; Increasing transaction costs and discounting benefits will amplify problems with additionality; Permanence can be dealt with by assigning liability; Uncertainty is different than bias – unbiased estimators should provide the best approximation of expected benefits.

22. Implications for Agriculture We need to better understand what prompts landowners to commit to certain agricultural practices Emerging GHG markets offer producers and landowners opportunities and potential risks. Legislation is being discussed that could shape how contributions from agriculture are given credit. Debates/discussions are occurring at the international, federal, and state levels.

24. Enteric CH 4 Manure CH 4 Manure N 2 O Rice CH 4 Soil N 2 O Organic soil CO 2 Mineral soil CO 2 Fossil fuel CO 2 Tg CO 2 equivalent US Agricultural GHG Emissions by Source Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990 – 2006. EPA, 2008.

25. Why is there interest in Cap-and-Trade? Concept: Regulators set overall limits on emissions (or environmental performance). Firms must have allowances to emit the pollutant. Allowances can be bought, sold, or transferred Advantages: Establishes clear property rights for pollutants Taps market forces to efficiently allocate resources to reduce pollution Provides incentives to innovate Equates costs of environmental control across all polluters Concerns: Makes it difficult to address localized environmental damage Could concentrate pollution in lower income areas Distribution of allowances creates new assets – and transfers of wealth

26. Implications of Discounting to Address Additionality Tons GHG Abated $/Ton GHG Offset Price Offset Quantity Discounts Effective Offset Price Offset Quantity

27. NRCS Global Change Priorities Targeted Incentives: Implement Conservation Programs with Carbon Sequestration & Greenhouse Gas Benefits Climate Change Literacy and Awareness Technology Developments for Voluntary GHG Reporting: Develop Methods to Estimate Agricultural GHG Sources and Sinks – Decision Support Tools Support Direct Carbon Measurement Techniques

28. NRCS Global Change Priorities Improve Resource Monitoring, Forecasting, and Assessment: Enhance Soil Survey, National Resources Inventory NRI, SNOTEL and SCAN Market-Based Initiatives and Agreements International Activities Methane to Markets Cooperate with State Dept on Bilateral and Multilateral Agreements

29. What we do The Natural Resources Conservation Service, NRCS, provides local assistance to help people voluntarily: Protect soil, water, and related natural resources Identify natural resource concerns Develop conservation plans Access technical expertise andcost- share opportunities on private, non-federal lands.

30. Our approach NRCS professionals serve every county in the US: serve local people who request assistance, promote partnership efforts deliver science-based information and technology, including decision support models

31. What we do NRCS technology development: Work with partners to develop and refine planning tools for use by field personnel and national leadership Help translate basic research into useable technologies for our field personnel and clients Provide technical training for agency personnel