
Back Issues \| Contact \| Editorial Team \| Submissions \| Subscribe \| Outreach Partners	3rd Quarter 2004

Overview of Agricultural and Forestry GHG Offsets on the US Landscape

by Brian C. Murray

The articles in this issue by Reilly and Alig et al. have focused primarily on the potential impacts of climate change in the agriculture and forest sectors, respectively. However, as discussed in the introductory article by Sohngen and McCarl, agriculture and forestry could also play a role in actions to mitigate greenhouse gases (GHGs) and forestall the threat of climate change. This article provides a brief overview of the types of agricultural and forestry activities that could be undertaken to sequester or reduce GHG emissions as well as their technical and economic potential to offset emissions from other sectors of the economy. The co-effects of these mitigation actions on other (nonclimate) environmental outcomes are discussed in the article by Feng, Kling, and Gassman.

How Much GHG can be Mitigated in Agriculture and Forestry, and at What Price?

US agriculture and forestry operate on an extensive land base; thus, the biophysical potential for GHG mitigation in these sectors is quite large. Under current conditions, US agricultural soils and forests sequester about 700 million tonnes (metric tons) of CO₂ equivalent per year (EPA, 2004), over 90% of which is from forest carbon sequestration. Although this amount alone offsets about one tenth of national GHG emissions, various actions can be taken to enhance sequestration above these baseline levels. Estimates of the biophysical carbon sequestration potential from changing management practices on the nation's cropland alone range from 300 to 550 million tonnes of CO₂ equivalent per year (Paustian et al., 2001). That is equal to the amount of CO₂ emitted annually by about 25-45 million cars. There is also ample potential to enhance carbon sequestration through afforestation, which can store up to 5-10 tonnes CO₂ per acre per year over a timber rotation (20-50 years in the most productive forests of the Southern and Pacific Northwestern United States). Given the amount of land available for conversion from agriculture to forest, this could amount to tens or hundreds of millions of tonnes CO₂ of additional annual carbon sequestration. Moreover, long-term storage of carbon in harvested wood products is possible for several decades at least, though not all accounting frameworks would necessary include this as a creditable form of sequestration (e.g., Kyoto).

As a major emitter of CH₄ and N₂O, approximately 470 million tonnes CO₂equivalent per year (EPA, 2004) or 7% of the total of all GHG emissions, substantial opportunity may exist to reduce these gases through changes in crop and livestock management if the economic incentives are strong enough.

Agricultural producers operate in competitive markets, often global in scale; the practices they currently employ are likely to be fairly efficient in producing as much saleable output as possible for a given level of inputs. Therefore, changes in agricultural land use and forest practices may involve opportunity costs in the form of higher production costs, lower or more variable yields, lower quality products, or some combination of the above. Farmers, then, may need some sort of economic inducement in order to engage in alternative practices that lower GHG emissions or sequester carbon. However, even if farmers are not directly paid to mitigate GHGs, they may do so as an economic response to GHG constraints put on other sectors of the economy, which could drive up prices of energy and energy-intensive goods (such as fertilizers) and thereby indirectly reduce input usage and corresponding emissions.

Several recent studies have examined the size of incentives necessary to generate GHG mitigation in the agriculture and forest sectors. Ongoing work by various researchers uses a model of the US forest and agricultural sectors (FASOMGHG) to estimate responses to a price incentive for GHG mitigation across these sectors. Results for the United States from one study using FASOMGHG (Lee, McCarl, Gillig, & Murray, in press) show the response from GHG price incentives ranging from $5 to $80 per tonne of CO₂ offered for all GHG mitigation options within the sectors (Figure 1). Some specific results include:

Agricultural soil carbon sequestration and forest management are fairly low-cost options, each producing more than 100 million tonnes of CO₂ eq. mitigation per year at a GHG price of $5/tonne.
Afforestation and biofuels become the dominant mitigation options at GHG prices above $15-30/tonne.¹
Mitigation of CH₄ and N₂O from agriculture has a fairly small but steady scope for mitigation.

The results shown in Figure 1 are within the range of those found in other recent studies of mitigation potential in US agriculture and forestry. The USDA Economic Research Service recently completed a report (Lewandrowski et al., 2004) that found carbon sequestration potential in US agriculture to be up to 600 million tonnes of CO₂ per year at a cost of up to $35/tonne. Those numbers are lower than the totals in Figure 1, but the USDA study evaluated afforestation and agricultural soil management only, not forest management, biofuels, or non-CO₂ gas mitigation. The USDA's afforestation and agricultural soil carbon estimates are within the price-quantity range for those activities shown in Figure 1. A review of forest carbon sequestration studies over the last 10-15 years (Richards & Stokes, 2004) found a wide range of estimates of economic potential in the United States, ranging from 100 to 2,800 million tonnes CO₂ eq. per year of carbon sequestration at costs ranging from $1/tonne to $40/tonne.

These results suggest that US agriculture and forestry together have a rather sizeable potential to mitigate the buildup of greenhouse gases. The highest estimates, in the range of 3 billion tonnes of CO₂ eq. per year, would offset approximately 40% of all US GHG emissions—an amount larger than the GHG contribution of all motor vehicles in the United States. However, such a large potential can only be realized at very high incentive levels ($50-80/tonne CO₂ eq.). In contrast, GHG trades in the European Union are now being realized at prices of approximately $10/tonne CO₂ eq. and at much lower prices in informal markets emerging in the United States (see Butt & McCarl, this issue).

Agricultural and Forestry as GHG "Offsets"

The notion of agriculture and forestry activities serving as an offset to emissions in other sectors of the economy is rooted in the policy and institutional environment surrounding climate change mitigation. Most efforts to mitigate GHGs focus heavily on the CO₂ emissions from the energy, transportation, and industrial sectors, where a vast majority of developed countries' emissions originate. In the United States, for instance, CO₂ emissions from these sectors comprise about 80% of gross aggregate US GHG emissions (EPA, 2004). Much of the remaining GHG balance, however, can be attributable to agriculture and forestry activity, so there remains a substantial scope for US agriculture and forestry to offset the emissions from these other sectors.

The institutions that have formed to implement GHG mitigation policy internationally and domestically in the United States have taken a mixed-bag approach to the role of the agriculture and forest sector in mitigation efforts. The Kyoto Protocol of the UN Framework Convention on Climate Change includes agriculture sector GHG emissions of CO₂, CH₄, and N₂O as part of each country's compliance commitment, but carbon sinks from agricultural soils and forestry activities have a more limited role, at least in the initial commitment period of 2008-2012. Of course, the United States has decided not to abide by the Kyoto Protocol commitments at this time, so the Kyoto provisions have fairly limited relevance for US domestic policy on the role of agriculture and forestry in GHG mitigation. However, the US Senate recently considered an alternative to Kyoto—the Climate Stewardship Act (S.139), introduced by Senators John McCain and Joseph Lieberman—which proposed binding GHG limits for some sectors of the US economy. The McCain-Lieberman bill was defeated in the Senate, but by a narrow enough margin (53-45) that follow-up proposals are now being considered. Under McCain-Lieberman, agricultural emissions were not to be capped, but mitigation projects in agriculture and forestry (and any other sector not covered in the cap) could be used to develop credits that are tradable to offset emissions in sectors covered by the caps (e.g., electric utilities, transportation, and manufacturing). The following section and the article in this issue by Butt and McCarl provide more detail on project-based approaches to GHG offsets.

Project GHG Accounting Issues

In the context of GHG mitigation policy, a project refers to a purposeful activity in a specific location and sector to reduce GHGs below some baseline level in order to demonstrate a net emissions reduction. In principle, a project's mitigation quantity can be used to offset emissions in a capped sector. Project-based offsets introduce several important phenomena that would need to be incorporated into the project GHG accounting system in order to maintain the integrity of the trade between an emission unit allowed by one party (the buyer of the offset) and an emission unit reduced by another party (the project developer or seller of the offset). There is currently an effort underway by the World Resources Institute (WRI) and World Business Council on Sustainable Development (WBCSD) to develop consensus standards for project-level accounting across sectors and countries to enable more accurate comparisons across GHG projects. Key project accounting issues are discussed below.

Additionality and Project Baselines

The net GHG benefit of a mitigation project is the additional GHG emission reductions (sequestration) that occur relative to emissions (sequestration) levels in the project's absence. This is the concept of additionality. To determine additionality, project managers need to establish a project baseline, which is an estimate of the emissions or sequestration that would occur under business as usual. Setting an accurate project baseline can be difficult, because it involves quantifying a hypothetical outcome, rather than the world as it exists with the project. A number of analyses and GHG mitigation programs have focused on the complexity of setting a baseline case to estimate GHG mitigation benefits (e.g., WRI/WBCSD, 2003).

"Permanence" and the Risk of Sequestration Reversal

The accumulated carbon from forestry and agricultural sequestration practices can be re-released back to the atmosphere through either natural or intentional disturbances, such as fires, management changes, or logging. The climate benefits of carbon sequestration activities are therefore potentially reversible. One way to deal with this problem is to design project contracts that assign liability for carbon reversal if it occurs. However, a project may last for a finite time period, in which case the threat of reversal occurs after the project ends. One way to address this problem is to set up the transaction as a carbon lease or rental contract for a set period of time—say, five years (Marland, Fruit, & Sedjo, 2001). At the end of the lease, the credit expires and the buyer needs to replace the carbon with another set of verifiable sequestration (or emission reduction) units. Yet another way is to discount the amount of offset credit given in the first place to account for the possibility of future reversal.

Leakage

Project-based mitigation approaches run the risk that some of the direct GHG benefits of these efforts will be undercut by leakage of emissions outside the boundaries of the project. For instance, a tree-planting project in one place may displace tree planting that would have occurred elsewhere, a so-called "investment crowding" effect. Or, the adoption of zero-tillage in some locations may cause other producers to intensify their cultivation practices elsewhere (also called "slippage"). Therefore, it may be important to recognize the potential for leakage in agriculture and forestry projects and to develop methods to target or design projects to minimize leakage, monitor leakage after projects are implemented, quantify the magnitude of leakage when it exists, and take leakage into consideration when estimating net GHG benefits of activities.

Transaction Costs

In addition to the direct production costs from adopting changes in management practices, there are also costs associated with actually getting the mitigation project up, running, and operational. These transaction costs include those for

initial project planning;
measuring, monitoring, and verifying the project's GHG effects;
market brokering and assembly; and
insuring risks.

These transaction costs may be paid by the offset buyer, seller, or both, but in any case, they impose real costs that diminish the net value of the offsets generated. Transaction costs tend to have a large fixed-cost component to them and are therefore more burdensome for small projects than for large ones.

Conclusions

Due to the effects of land use on the carbon cycle and the dominance of agriculture and forests as a land use in the United States, the scope for agriculture and forestry practices on GHG flows can be substantial. A number of actions within the sectors can be taken. Table 2 identifies candidate activities within the sectors at high and low prices and in the near term and long term. Some activities, such as changes in crop tillage practices and forest management, can be accomplished at a fairly low opportunity cost and in the near term. However, sequestration options tend to have a saturating effect over time as the new (postpractice) equilibrium for soil or biomass carbon is reached and may even experience reversal if harvesting or natural disturbances intervene. Therefore, emission reduction or fossil fuel substitution projects, such as biofuels, may have a more permanent impact on mitigation efforts in the long run.

Notes

¹ In this model simulation, biofuel potential is capped at just under one gigaton CO₂ equivalent per year, because of underlying assumptions about biofuel use capacity constraints in the US electricity generation sector. Without such a capacity constraint, biofuel potential would substantially outpace the other mitigation options at the higher prices evaluated.

For More Information

Lewandrowski, J., Peters, M., Jones, C., House, R., Sperow, M., Eve, M., & Paustian, K. (2004). Economics of sequestering carbon in the U.S. agricultural sector (technical bulletin no. 1909). Washington, DC: US Department of Agriculture Economic Research Service.

Lee, H-C, McCarl, B.A., Gillig, D., & Murray, B. (in press). U.S. agriculture and forestry greenhouse mitigation over time. In F. Brouwer & B.A. McCarl (Eds.), Rural lands, agriculture and climate beyond 2015: Usage and management responses. Dordrecht, The Netherlands: Kluwer Academic Publishers.

Marland, G., Fruit, K., & Sedjo, R. (2001). Accounting for sequestered carbon: The question of permanence. Environmental Science and Policy, 4, 259-268.

Paustian, K., Babcock, B., Kling, C., Hatfield, J.L., Lal, R., McCarl, B., Post, W., Mosier, A.R., Rice, C., & Robertson, G. (2001). Agricultural mitigation of greenhouse gases: Science and policy options. National Conference On Carbon Sequestration. Available on the World Wide Web: http://www.netl.doe.gov/publications/proceedings/01/carbon_seq/4C2.pdf.

Richards K.R., & Stokes, C. (2004). A review of forest carbon sequestration cost studies: A dozen years of research. Climatic Change, 68, 1-48.

United States Environmental Protection Agency. (2004). Inventory of U.S. greenhouse gas emissions and sinks: 1990-2002. Washington, DC: EPA.

World Resources Institute and World Business Council on Sustainable Development (WRI/WBCSD). (2003). The Greenhouse gas protocol: Project quantification standard. Road Test Draft.