Can the carbon market curb grassland loss in the Northern Great Plains?

By Kristen Johnson

In recent years dramatic amounts of grassland have been converted to cropland in the Northern Great Plains, specifically in North and South Dakota. This article estimates the large CO2 emissions generated from this conversion, making this issue relevant to not just habitat protection but also climate change mitigation. The article considers whether the current carbon market provides landowners with ample financial incentives to conserve grassland compared to potential profits from crop production. A simple economic comparison reveals that carbon credit payments at current rates are not likely, if used in isolation, to result in large-scale conservation of North and South Dakota grassland.

Conservationists in North and South Dakota have witnessed what has been termed a “perfect storm” of high commodity prices, under-funded conservation programs, diminished ranching profits, and incentives for corn ethanol production (Checkett 2008). Many argue that this perfect storm has driven conversion of dramatic amounts of grassland to cropland. These changes have not only threatened prairie wildlife populations but also have resulted in substantial carbon emissions (Way 2008). While conservation practitioners have relied on grassland easements and Farm Bill conservation programs to mitigate this conversion, some see the emerging carbon market as a promising mitigation tool (Ducks Unlimited 2007). This article estimates the carbon emissions generated from recent grassland conversion in the Dakotas to underscore the issue’s urgency not just for habitat protection but also climate change mitigation. The article then considers what types of carbon offset projects relate specifically to grassland preservation and whether the payments given to landowners for those projects can compete with the profits associated with crop production. This simple economic comparison reveals that carbon credit payments at current rates would boost farm income but would provide small economic benefits relative to converting land to crop production. The comparison suggests that unless the price of carbon increases substantially, the carbon market alone is not likely to incentivize large-scale conservation of North and South Dakota grassland.

Carbon Emissions from CRP Conversion

Land enrolled in the Conservation Reserve Program (CRP) has accounted for the majority of land converted to cropland since 2007 in North and South Dakota (Way 2008). CRP is a voluntary program administered by the Farm Service Agency (FSA) that pays landowners to retire agricultural land and plant environmentally beneficial cover vegetation. In addition to providing wildlife habitat and reducing runoff and sedimentation, CRP land sequesters atmospheric carbon in its soil and above-ground vegetation. One FSA report estimates that prior to 2007, 50 million metric tons of carbon dioxide had been sequestered in CRP across the United States (USDA FSA 2007). However, CRP enrollment has declined sharply since 2007, due to a combination of administrative and economic factors. In North and South Dakota alone, more than 350,000 hectares were released from the CRP program and plowed for crop production between 2007 and 2009 (USDA FSA 2009). Fargione et al. (2008) estimated that bringing abandoned cropland back into cultivation releases 69 Mg CO2 ha-1 (carbon formerly stored in below- and above-ground biomass) into the atmosphere. Based on this estimate, approximately 24 million Mg of CO2 were released in North and South Dakota as a result of CRP loss between 2007 and 2008 (Table 1).

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According to FSA and state agency officials, the main reason for this drastic loss in CRP was uncompetitive rental rates (personal communication, March 2009). When deciding to re-enroll land in CRP, farmers chose between the CRP rental rates offered by FSA and the profits afforded by crop production, and the latter was the best economic choice. This provides the reasoning behind using the carbon credit system as a conservation tool—offering additional payments to farmers to prevent grassland conversion.

Carbon Emissions from Native Prairie Conversion

Before large-scale CRP loss occurred in 2007, grassland loss in North and South Dakota came mainly in the form of “new breakings”—native prairie plowed for the first time. According to FSA records, approximately 190,000 hectares of “unbroken” grassland in the Dakotas were converted to cropland from 2002 to 2007. (New breakings have continued since 2007 but measurements aren’t publicly available). Fargione et al. (2008) estimated that converting native grassland to cropland releases 134 Mg CO2 ha-1. Based on this estimate, approximately 24 million Mg of CO2 were released to the atmosphere in North and South Dakota as a result of plowing native prairie from 2002 to 2007 (Table 2).

kj_figure2

The primary reason behind these land-use trends, as with CRP loss, is economic (personal communication with conservation groups, March 2009). Ranchers own most of the privately held native prairie in the Dakotas and use the land for grazing livestock. Put simply, the profits of cattle grazing haven’t been able to compete with the profits of crop production, and as this profit differential grows, the more native grassland is cultivated. Some conservationists hope that the carbon market can help close this gap by providing additional payments to landowners who leave their native prairie unbroken.

The Chicago Climate Exchange

In the United States, the only voluntary and legally binding trading system currently established for reducing greenhouse gases is the Chicago Climate Exchange (CCX). Through CCX, interested landowners are issued tradable Carbon Financial Instrument (CFI) contracts if they cut their emissions or implement “offset” projects, projects that sequester or displace greenhouse gases. CCX Members—corporations or other entities that emit GHGs—purchase these credits instead of directly reducing their own emissions (CCX website 2007).

In addition to offset providers and CCX members, “offset aggregators” are also important players in CCX. Aggregators make landowner participation in CCX possible by aggregating small offset projects that otherwise would not qualify for a CFI on an individual basis. To qualify for a CFI, an individual offset project must mitigate at least 10,000 metric tons of CO2 equivalent per year (CCX website 2007). Small projects therefore must be lumped together to meet this requirement, and offset aggregators make this possible. The National Farmers Union, Delta P2/E2 Center, and Ranchlands Management are among the ninety aggregators officially recognized by CCX (CCX website 2007).

With the help of aggregators and farmer interest groups, farmer participation in CCX has grown rapidly. In 2008 the Iowa Farm Bureau estimated that approximately 4,000 farmers were participating in the carbon credit trading system, covering more than 4 million acres across nearly 30 states.

CCX Projects Applicable to Conserving Grassland in the Dakotas

In the CCX trading system, two types of offset projects are relevant to the conservation of CRP and native prairie land. Only activities implemented on or after January 1, 1999 are eligible as offsets (CCX 2007).

Soil Carbon Management Offsets (CCX 2007): This offset category includes both no-till and grass planting projects that increase soil carbon sequestration. For the purpose of keeping land in CRP, only the latter category would apply. To encourage involvement in the CRP program, payments from this offset could be layered on top of CRP rental rates (as long as the grass was planted on or after January 1, 1999).

Rangeland Soil Carbon Management Offsets (CCX 2007): Landowners who graze livestock can earn offset payments if they increase carbon sequestration on their land, which can be achieved through rotational grazing and sustainable stocking rates, as well as restoring previously degraded rangeland. In the context of North and South Dakota, payments from this offset may boost ranching profits and prevent conversion of grassland (both native prairie and pasture).

Economic Comparisons: Profits of Crop Production vs. CRP and Rangeland

The profits from crop production vary greatly based on what crop is grown, the costs of fertilizer, pesticide, and fuel inputs, and the various environmental conditions that influence yield. For the purposes of comparison, table 3 illustrates the profits of combined CRP and CCX payments versus the profits associated with converting CRP land to corn production in Stutsman County, North Dakota. The total profit of corn production is highly dependent on yield and the selling price of corn. In this case, a lower-than-average yield is used (100 bushels/acre), given that CRP land is usually less productive and/or marginal agricultural land. A moderate corn price of $4/bushel is used based on a recent estimate by USDA (Johnson 2008). The comparison reveals that under these assumptions, corn production is about twice as profitable as land retirement rates combined with CCX offset payments.

kjohnson_figure3

An economic comparison of rangeland profits versus corn profits is difficult given the numerous factors that determine the income of livestock operations. However, based on the current price of carbon, the CCX payment for implementing soil carbon management on rangeland in Stutsman County, North Dakota (for the length of a five-year contract) is $0.72 per acre. While this amount could generate large revenues on large ranches, 2007 USDA census data suggest that the average ranch size in North and South Dakota is a few hundred acres in size, amounting to a few hundred dollars over the course of five years. At a higher carbon price this extra income could be considerable, but it may not persuade a landowner who is tempted by the $515 per acre annual profit that crop production would offer.

Will the carbon market influence landowners’ land-use decisions?

While the carbon market might help agricultural producers boost income, landowners may not drastically alter land use just to take advantage of these payments. For instance, farm organizations caution landowners to be judicious in deciding whether to participate. Rather than implementing entirely new practices for the sake of carbon payments, landowners are encouraged to participate only if the contract requirements naturally complement their land management goals. As one extension specialist explains, “there’s a lot of volatility in the carbon market right now [and I wouldn’t] do something exclusively for the revenue from carbon credits.” The National Farmers Union echoes this theme with a more optimistic tone, referring to these payments as “icing on the cake,” on top of other forms of farm income. Many conservationists, at least, still hope the carbon payments will provide a critical nudge toward conservation in the face of strong economic incentives to cultivate more land. As revealed by a simple economic comparison, that nudge may be marginal, and in order to provide the economic persuasion that will make a meaningful impact on the North and South Dakota landscape, the price of carbon must increase significantly.

References:

Checkett, M. (2008). Ducks Unlimited – Blogs. Retrieved Mar. 20, 2009, from http://www.ducks.org/blogs/1/176/index.html

Chicago Climate Exchange. (2007). Chicago Climate Exchange-CCX. Retrieved Mar. 18, 2009, from http://www.chicagoclimatex.com/

Ducks Unlimited. (2007). “Carbon Credits Finance New Approach to Large-Scale Conservation.” Retrieved Mar. 20, 2009, from http://www.ducks.org/news/1430/CarbonCreditsFinance.html

Fargione, J., Hill, J., Tilman, P., & Hawthorne, P. (2008). Land Clearing at the Biofuel Carbon Debt. Science, 319, 1235-1238.

Farmers Union. (2009). The Farmers Union Carbon Credit Program Payment Calculator. Retrieved Mar. 20, 2009, from http://carboncredit.ndfu.org/4dlink/4dcgi/carbonestimator/Rangeland

Johnson, A. (2008). Farm & Ranch Guide. “USDA suggests average 2008 cash corn price of $4 per bushel.” Retrieved Mar. 20, 2009, from http://www.farmandranchguide.com/articles/2008/12/19/ag_news/ markets/mark10.txt

Ontario Corn Producers’ Association (OCPA). (1997). “What Does it Cost to Grow Corn?” Retrieved Mar. 20, 2009, from http://www.ontariocorn.org/growing/cost.html

USDA. (2007). 2007 Ag Census. “Table 8. Farms, Land in Farms, Value of Land and Buildings, and Land use: 2007 and 2002”. Retrieved Mar. 19, 2009, from http://www.agcensus.usda.gov/Publications/2007/ Full_Report/Volume_1,_Chapter_2_US_State_Level/st99_2_008_008.pdf

USDA Farm Service Agency. (2007). “Conservation Reserve Program: Summary and Enrollment Statistics,” FY 2007.” Retrieved Mar. 20, 2009 from http://www.fsa.usda.gov/Internet/FSA_File/annual_consv_ 2007.pdf

USDA Farm Service Agency. (2009). “CRP Contract Summary and Statistics: February 2009.” Retrieved Mar. 20, 2009, from http://www.fsa.usda.gov/FSA/webapp?area=home&subject=copr&topic=crp-st

USDA National Agricultural Statistics Service (NASS). (2008). Publications: 2008 Agricultural Statistics, Grain and Feed. Retrieved Mar. 20, 2009, from http://www.nass.usda.gov/Publications/Ag_Statistics /2008/index.asp

Way, R. (2008). MinnPost.com. “A growing concern: Grass-to-cropland conversion.” Retrieved Mar. 20, 2009, from http://www.minnpost.com/stories/2008/04/24/1618/a_growing_ecological_concern_grass-to-cropland_conversion

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3 Responses so far »

  1. 1

    Russell said,

    AWESOME ANALYSIS!!! FSA/NRCS should be conducting a similar analysis for every US county. Identifying the annual income gap between land managed for conservation vs. crop production is vital to establishing policies and programs that will close the gap and encourage conservation practices on marginal land. We, conservationists, need to start thinking about ways to level the playing field between these two activities. What are some alternative activities that can be implemented on conservation land that will bring income to land owners? Hunting? Wind/solar energy development? Harvesting native grasses at the end of the growing season for conversion to bioenergy??? How can we close the gap between practicing conservation and crop production?!?

  2. 2

    Baruani said,

    It is an interesting analysis. My comment relates to your assertion that if carbon prices increase then conservation for sell of carbon credits is likely to be profitable. while that may true, I thought if we consider production and transaction costs in the production of CRP or grassland carbon credits, it is still unlikely that CRP carbon credits will be cost competitive, why? Transaction costs associated with cetifying carbon credits in small CRP land land areas is higher than for larger landowners. It is costly to measure and monitor the numerous small CRP lands similar to measuring numerous small emission sources. However, this is overcome by aggregators: but we need to understand how much of the profit goes to the aggregators? and how much will end up going to the landowner? Unless we incorporate production and transaction costs, carbon credits from small landowners will never be a low hanging fruit and is unlikely to compete with low hanging fruits. Even if it becomes profitable overall but if the profit is not trickling down to the small landowner, then the small landowner is likely to convert the CRP to crop production.

  3. 3

    ColinCarbon said,

    Good work Kristen.
    Is there a need to recalculate using current (lower) grain prices? Could then come up with a break-even price for carbon.


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