Delivering GHG Reductions under Various Climate Policy Options

By Charles Kerchner, Senior Environmental Accountant at AgRefresh

With the economic concerns, health care debate, and climate skepticism delaying any immediate action on climate change policy in Washington, the door has been left open for other climate policy proposals. The question facing farm and forest landowners during this time of uncertainty is: How can the agriculture and forestry sectors deliver GHG reduction benefits under any policy option on the table?

To date, the lion’s share of attention has been given to the cap-and-trade policy (i.e., the Waxman-Markey bill and the Kerry-Boxer bill). Under a cap-and-trade system the agriculture and forestry sectors are expected to be uncapped sectors and are expected to deliver substantial quantities of offsets to capped entities at an early stage in the game.  This could represent a multi-billion dollar a year revenue stream for American foresters and farmers.  However, if a cap-and-trade system is not the chosen policy, there are still opportunities under the other options being considered.

One policy option that has received increasing attention recently is the “cap-and-dividend” plan highlighted by Senators Cantwell and Collins in their CLEAR Act bill.  At the core of CLEAR is an upstream cap on fossil carbon as it enters the economy with a hundred percent auction of permits to energy producers.  75% of the revenue from the auction is returned as a cash refund to every legal citizen. 25% of the revenue is directed to a dedicated trust, the Clean Energy Reinvestment Trust (CERT).   In direct contrast to cap-and-trade legislation, there is no use of domestic or international offsets for meeting compliance obligations. However, the CERT would fund cost-effective reduction/sequestration projects that verifiably reduce, avoid, or sequester GHG emissions.

Another policy option, though not a politically attractive alternative, would be a carbon tax.  This could mirror a similar program as a cap-and-dividend program where additional reductions are financed via tax revenue.

The key to delivering GHG reductions or sequestration outside a cap-and-trade policy is to keep the program as administratively simple and cost-effective as possible.  This can be done.  The advantage of a cap-and-dividend, carbon tax, or hybrid, unlike a cap-and-trade program, is that reductions coming from the agriculture and forestry sectors are not needed for compliance. They will be purely additional reductions beyond the already established cap or tax.  Thus, reductions may not be subject to the same offset rules, (i.e. additional, verifiable, registered, and permanent) as a cap-and-trade system, because they do not sacrifice the integrity of the emission reductions target.

What does this mean? In straight speak, it means that these reductions may be cheaper to deliver than under a cap-and-trade program.   Because they might not have to prove “additionality” and incur the many monitoring and verification costs as a cap-and-trade offset, they could be rolled into programs that already exist, such as the USDA’s Conservation Reserve Program or Conservation Security Program or newly established programs like Senator Shaheen’s bill that calls for USDA to administer a forest carbon incentive program.

There are many questions facing the farm and forestry sectors: How does the quantity of reductions compare among the policy options? How do the costs of reductions compare?  In sum, how does the net revenue for agriculture and forestry sectors compare among policy options? Because many of the details needed to answer these questions have yet to be determined, it is difficult to say. However, the next step will be to quantify the reductions that can be delivered under the different policies, examine the costs of the policies, and compare the potential revenue streams to the agriculture and forestry sectors.

Charles Kerchner

AgRefresh Senior Environmental Accountant
802.859.0099 ext.5

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