Last Friday, results from California’s second cap-and-trade auction were released and by all accounts it was a huge success. More importantly, it sent a signal that this is a strong and viable carbon market and presents a golden opportunity for landowners.
Through agricultural offsets, landowners have the potential to provide companies a lower priced option for meeting California’s greenhouse gas targets than available through the auction. Companies that must meet the requirements of the cap-and-trade program are allowed to use offsets for up to 8 percent of their greenhouse gas obligation and the price of carbon is going up with each auction — there was a 27 percent increase in the price of allowances between the November and February auction, from $10.09 to $13.62 per metric ton.
The California Air Resources Board (CARB) has approved four types of offset projects for use under California’s cap-and-trade program: forestry (improved management, avoided conversion, and reforestation), livestock methane capture and destruction, refrigerant destruction (limited to specific ozone depleting substances), and urban tree planting. At the end of March, CARB will start a rulemaking process for the consideration of two new protocols – rice cultivation and coal mine methane destruction. EDF is working closely with stakeholders throughout the U.S. to help develop and implement a rice protocol.
A related and positive development for the offset market occurred on December 14, 2012 when the Climate Action Reserve and American Carbon Registry were named as official "Offset Project Registries." The registries can now issue offset credits from protocols that have been approved by CARB. As additional agricultural offset protocols are approved, farmers throughout the United States can begin offering agricultural offset credits to companies to help them comply with California’s cap-and-trade program. We expect the first offsets to be issued by the registries and approved by CARB in the next three months.
While prices vary by year and type of offset, offsets were trading between $10 and $12 per metric ton prior to the second auction. This price will go up now that the results of the auction have been released. This means that agricultural producers will have an opportunity for a new and steady income stream for their conservation stewardship and for being part of the climate solution.
To learn more about agriculture's ability to offset climate change please visit EDF's web page here: http://www.edf.org/climate/agricultures-ability-offset-climate-change.