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Carbon credit program ain’t what it used to be

A rising carbon tax should put more money 
in farmers’ pockets, 
but participation rates have gone down

Greenhouse gases were on the minds of many Alberta farmers a decade ago when no till offered good cash from selling carbon offset credits.

Fast-forward to 2017 and things have changed.

Although there is still a lot of participation in the province’s carbon credit trading and sequestration program, many believe it has become too demanding, too restrictive, and less beneficial to producers. At the same time, the regulations guiding carbon trading could take away one of the program’s most popular protocols: conservation cropping.

So what happened?

In 2012, Alberta Environment and Parks, which regulates the carbon trading program, made changes to the regulations, including requiring more record-keeping and removing the ability to claim historical credits for previous years.

“It’s a more rigorous verification process, including measuring various aspects of your equipment,” said Greg Sears, chair of the Alberta Canola Producers Commission and a Grande Prairie-area producer.

“I think we’ve seen participation rates drop. I don’t know what the latest numbers are but I think we were getting to where 15 per cent of producers were participating, which is certainly far less than maybe it once was — and far less than should be participating.”

More paperwork

The offset credit system, created in 2007, uses a reduction in greenhouse gas emissions in one area to cancel out greenhouse gases created somewhere else. The goal was to reduce emissions by allowing large greenhouse gas producers to buy offset credits from smaller-scale emitters such as agricultural operations.

The system includes about 30 offsets spanning a wide range of industries — 10 of which are dedicated to agriculture. For Alberta crop producers, the conservation cropping protocol (which was called tillage prior to 2012) has proven to be one of the most popular.

Paul Jungnitsch.
photo: Supplied

“It basically rewards reduced tillage,” said Paul Jungnitsch, greenhouse gas offset agrologist with Alberta Agriculture and Forestry. “The plants are taking carbon from the air and putting it into the roots and reduced tillage keeps that carbon in the soil.”

An added attraction of this credit is that producers don’t have to record the actual amount of carbon being sequestered.

“With the conservation crop protocol, you’re basically recording a practice — not measuring the carbon itself,” said Jungnitsch. “The rationale behind it is if you do this particular practice, on average you’ll capture such and such an amount of carbon. That was the genius behind that particular protocol.”

At the height of its popularity, producers could claim up to 10 years’ worth of zero-tillage practices. That changed after the 2012 regulations, which increased the burden of proof, said Jungnitsch.

“It’s basically changed from what they call ‘limited assurance’ to ‘reasonable assurance.’ They tightened up the records for that practice so the record-keeping requirements for your seeded field size, your tillage implement, your annual crop, and your land ownership all went up. For farmers, time is money — so they have to judge whether those extra records are worth the income from the system.”

And the entire no-till offset program may soon be scrapped because regulations include a clause requiring “innovation” in carbon sequestration practices. That is measured, in part, by how many producers have adopted the practice.

“Once the offset practice gets a certain level of adoption — usually around 40 per cent — they may not be qualified anymore,” said Jungnitsch. “No till is getting pretty close. By definition anything that gets adopted enough will reach an end in the offset system. (Alberta Environment) can look at the adoption figures and say, ‘That’s enough.’”

But producers should continue to receive an incentive for their zero-till activities, said Sears.

“I think there’s a certain benefit to incentivizing best practices, but there is also a service being provided by producers on an ongoing basis — that being sequestering carbon in their soils,” he said. “There should be a continued benefit to producers because of that.”

Renters and middlemen

Another issue affects producers who rent land. Under the regulations, the money for offsets defaults to the landowner unless the producer can work out some sort of arrangement.

“The farmer has most of the records so mostly it’s the guy who’s farming the land that claims the offsets,” said Jungnitsch. “But if you rent a lot of land from a lot of different landowners, you have to get a lot of landowners to agree to sign that over to you or divide it. If you own your land it’s easier.”

This regulation is “really discouraging” to a lot of producers, said Sears.

“I’ve talked to several people who’ve said it’s a significant impediment. The farmer makes the investment in the reduced tillage equipment and everything required to follow the protocols, yet may not be able to receive any of the benefit from the sequestration.”

Another development in recent years has been the maturation of the carbon credit aggregation industry.

Aggregators buy offset credits from smaller greenhouse gas emitters (such as farmers) and package them together for sale to larger emitters. There’s a popular misconception that the provincial government buys offsets from producers when it’s actually these private aggregators that do most of the buying and selling, said Jungnitsch.

“The money in the system comes from the big, regulated private companies such as the big power producers, coal plants, and fertilizer producers. You need a company that collects all the offsets from the individual producers, collects their records, follows the system for getting it into an acceptable product, processes them, verifies them, checks them, and then posts them in a large enough quantity that a big company would be interested in. A big gas company doesn’t want to write a cheque for 10 or 20 tonnes — it wants to write a cheque for 100,000 tonnes and have that meet all the specifications that are required.”

Aggregators are necessary because of the sheer number of farms involved.

“In agriculture, the challenge for aggregators is they have a lot of different operators and a lot of different records,” said Jungnitsch. “Because there are so many different producers and different kinds of producers, their records are more difficult by their very nature. But it looks as though the aggregators have done a good job getting all these various farmer records together.”

Carbon tax

The need for aggregators is in itself a sign of the system being too complex, said Sears.

The system also means farmers are losing out as the provincial carbon tax rises, said Sears. (The rate, currently $20 per tonne, will increase to $30 on Jan. 1 and eventually to $50 by 2022.)

“As carbon credits become more valuable with the current carbon tax scheme, (aggregators) prevent farmers from taking advantage of any marketing opportunities due to the escalation in the price of credits,” he said.

“Right now, the aggregators can basically stockpile those credits in speculation of future increases in price. Farmers do not currently have the ability to do that. We are basically forced to sell credits whereas it might be more valuable if we were able to hold on to them for several years and take advantage of the higher prices on our own.”

Historically, producers have received two-thirds of the selling carbon price, said Jungnitsch. “The last time I checked with the aggregators back in the end of March they were paying around $13/tonne for the 2016 year credits, which would match similarly with the official rate of $20/tonne that emitters are liable for, for 2016 emissions. That works out to about $1.47/acre to a farmer in the Parkland and half that in the dry prairie. Prices are expected to go up with the $30/tonne pricing for 2017 industrial emissions.”

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