Prairie soil formed over centuries but the politics and economics surrounding it are evolving by the minute, particularly when it comes to trading in carbon dioxide offsets.
Late last year, trading in soil-based carbon dioxide offsets stopped on the Chicago Climate Exchange (CCX).
It facilitated the sale of more carbon dioxide offsets than any other institution in the world between 2004 and 2009.
Carbon dioxide aggregators and offset buyers traded the equivalent of nearly 30 million tonnes of carbon sequestered in agricultural soil in Canada and the United States.
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However, the value of CO2 offsets has dropped dramatically on the exchange over the past two years, falling from a high of more than $6 per tonne in mid-2008 to just pennies a tonne last fall.
Carbon offets are a key component of a system known as a cap and trade.
Typically, a cap and trade system sets limits on how much greenhouse gas an entity is allowed to produce.
Industries or other polluters that exceed their cap can continue to produce more than their legal limit, but they must offset their excess pollution by buying credits from entities that produce less than their legal entitlement.
Those familiar with the CCX say the value of CO2 offsets bottomed out because proposed cap and trade legislation in the U.S. failed to gain necessary support in Congress late last year.
Carbon dioxide is one of three greenhouse gases believed to be responsible for global climate change.
Industry stakeholders aren’t sure how the crash of North American CO2 offset markets will affect Canada.
Ian Wishart, a farmer near Portage la Prairie, Man., and former president of Keystone Agricultural Producers, said the failure of Chicago’s carbon trading platform wasn’t a surprise.
He said the value of CO2 offsets has been declining steadily in the U.S., and a political commitment to greenhouse gas reduction strategies, including the cap and trade system, has been wavering.
By comparison, emission reduction strategies in Canada, Europe and other parts of the world are gaining momentum.
“As far as carbon offsets were concerned, I think we were all looking for more high value markets than what Chicago had turned out to be,” said Wishart, who has watched the development of offset markets for several years.
“Many provinces in Canada have already found a piece of that higher value market … and Saskatchewan in particular seems to be moving forward in that direction.… The value of the (CO2 offset) market in Europe is so much higher that, really, Chicago was almost doomed…. Europe seems to be moving ahead with this particular policy very aggressively, so I think what has happened in Chicago was almost bound to happen.”
Wishart said CO2 offsets have traded in Europe at values as high as $30 per tonne.
In Western Canada, Regina-based offset broker C-Green Aggregators has aggregated farm-based CO2 offsets for several years.
Ranchers and no-till farmers can use C-Green to enter into contracts, assigning the company as the sole aggregator and marketer of soil based CO2 offsets.
C-Green had sold aggregated offsets by the tonne on the CCX to industrial buyers in North America and overseas.
However, the company has recently stockpiled offsets in anticipation of alternate marketing platforms.
Jeff Gross, an official with C-Green, said changes at CCX should not have an immediate impact on Canadian farmers who have entered into carbon offset contracts.
Farmer payments have been issued for all CO2 offsets that C-Green sold.
Trading may have stopped, he said, but the CCX still exists and Canadian farmers who signed agreements to have their offsets sold on the exchange are still legally bound by the terms of their contracts.
Intercontinental Exchange Inc. (ICE), an international bourse operator, acquired the CCX and London’s European Climate Exchange (ECX) in April for $622 million US, according to Reuters News Agency.
Within weeks, ICE began reducing staff at the exchange, throwing further uncertainty into the North American market.
Gross said C-Green is still signing offset agreements with farmers in Western Canada, but it will no longer sell offsets through the Chicago exchange.
Instead, it hopes to sell credits on a soon-to-be-established Saskatchewan market.
The provincial government passed legislation last year that cleared the way for a provincially regulated greenhouse gas reduction program that will include the sale of CO2 offsets under a cap and trade system.
Bill 126 has already received royal assent and is likely to be implemented by mid-2011.
Alberta has established a similar system and discussions are continuing to determine if a national trading system is possible.
“The 2008 contracts, the 2009s and the 2010s have all been stockpiled so we’ve probably got about $20 plus million worth of deals ready to go,” Gross said.
“What we’re going to be doing is selling them to the Saskatchewan market (whenever) that market happens. What we’re waiting on now is for the regulations to (be finalized).”
The stockpiling of carbon offsets may suggest to farmers that payments could be delayed.
Industry stakeholders say farmers who sign offset contracts with aggregators should study the terms of their contracts closely and ensure that contracts have clearly defined start and end dates.
Wishart said the emergence of new marketing platforms in Canada and the continued development of European markets could lead to larger returns for Canadian farmers who enter into contracts.
Western Canadian farmers who entered into contracts with C-Green two years ago could expect payments of 80 cents to $1.60 per acre, depending on their farm management practices and soil type.
Producers in the black and grey soil zones could typically earn twice as much as producers in the brown and dark brown soil zones, based on the land’s ability to sequester more carbon.
Dirt-ionary:
A carbon offset is a credit for greenhouse gas reductions achieved by one party that can be purchased and used to compensate for the emissions of another party. Carbon offsets are typically measured in tonnes of CO2-equivalents and are bought and sold through international brokers, online retailers and trading platforms.
Renewable energy such as a wind farm, or installations of solar, small hydro, geothermal and biomass energy can all create carbon offsets by displacing fossil fuels.
Other types of offsets include methane capture from landfills or livestock, destruction of potent greenhouse gases such as halocarbons, and carbon-sequestration projects (through reforestation or agriculture) that absorb carbon dioxide from the atmosphere or keep it from being released.
Source: David Suzuki Foundation
