As Patterson dairy of Auburn N.Y., grew from 100 cows to 850 cows, its odor challenges expanded, too. So, owner Connie Patterson put her nose to work to solve the problem.
“I discovered that separated solids from our lagoons smelled like peat moss,” she explains, adding, “I wanted to be able to say the same for our liquids.” The solution was a complete-mix methane digester installed in 2005. Then, aggregator Environmental Credit Corporation knocked on her door, and Patterson entered the realm of carbon credits.
Carbon credits have provided Patterson with a previously unavailable revenue stream. So far, Patterson has banked about $15,000. But that stream will pick up as the market develops. For example, last year the U.S. carbon credit market doubled to between $150 and $200 million. Government estimates put the potential value of agricultural carbon offsets (credits) as high as $24 billion annually.
Use the following information to create opportunities for your dairy with carbon credits.
A new world
First, wrap your mind around the concept of carbon credits. A carbon credit is equal to a metric ton of carbon dioxide destroyed or removed from the air. It must be measured and verified to have market value.
For agriculture, these credits come in several forms — carbon offsets via carbon sequestration, achieved with specific conservation-tillage practices. And greenhouse gas (GHG) destruction, as with methane capture and burning. The clincher is that someone is willing to pay you to perform these practices, some of which may already be a part of your operation.
You’re selling an environmental attribute, says Jenifer Wightman, private consultant to the Central New York Resource Conservation and Development Project, Inc. “Carbon credits are invisible, but they are tangible.”
“We look at them as a market-based incentive to adopt conservation practices,” explains Russ Evans, policy and operations manager of the Northwest Direct Seed Association based in Moscow, Idaho. “It’s not a lot of money, but it does offer a financial opportunity.”
If you decide to follow this path, you are legally bound to follow specific practices to reduce your carbon emissions. And the buyer must compensate you for your reduction.
If you are unwilling to go through this process, then carbon credit trading is not for you.
You don’t have to have a methane digester to participate in the carbon market. Dairy producers can cash in on several levels, especially those with cropping enterprises.
Credit is offered for certain conservation-tillage practices. Forest land also generates carbon credits. Credits offered per acre depend on your location, practice and tree species. For example, based on current figures, 250 acres of no-till in Wisconsin’s Zone B would net about $268 per year.
The U.S. has been divided into various zones, based on soil type and its ability to sequester carbon. Zone B sequesters carbon at 0.4 metric tons per acre per year.
Work with an aggregator (see sidebar on page 21) to obtain accurate figures for your situation.
Or, you can cover your lagoon and flare off accumulated methane gas. You’ll note savings in reduced rainwater storage and hauling cost, plus the value of credits obtained from methane gas destruction. Methane is deemed 21 to 23 times more potent than carbon dioxide, thus you’ll obtain more carbon credits from this practice than from cropping practices. And odor is reduced. Again, figures waver depending on herd size, lagoon volume and other variables.
A rough example for a storage cover for a 400-cow New York dairy by independent consultant Steve Bulkley indicates that you could save $4,712 in reduced rainwater-hauling cost. Plus, gross carbon credits at $6 per ton brought in about $9,000. However, that must be weighed against equipment, operational and amortization cost and aggregator and verification fees.
“This is a more economical option than installing a digester,” says Wightman. Just be sure to pencil out the project so that it makes economic sense for your operation.
Finally, for dairies with a methane digester, carbon credits are one more way to gain additional revenue from that huge investment. Keep in mind, though, “they are not going to pay for today’s expenses,” says Patterson.
“Carbon credits should not be the deciding factor as to whether a digester is feasible,” she adds.
The carbon market must grow tremendously if ag offsets are to generate the predicted $24 billion per year. It’s entirely possible, depending on the political and regulatory climate. The dairy industry announced its commitment to reducing greenhouse gases following the Sustainability Summit for U.S. Dairy this summer.
So, there is potential for financial gain to those who invest in carbon trading before it is mandated. According to the Northwest Direct Seed Association, if laws or regulations limit GHG emissions, the market for carbon credits would be large and could be international.
But there’s great uncertainty, says Evans. “We don’t know what opportunities will be available for ag in the future.”
“It’s not like anybody can tell you what to do for sure, because the carbon market is constantly changing and evolving,” Patterson says. “We’re just beginning to see the potential. But, I would do it all over again.”
Run the numbers
According to researchers at the University of Florida, a computer model shows that if a dairy with 3,500 cows hypothetically converts its manure to methane to electricity, it could achieve annual carbon credit revenue of about $56,000. This is not true for every dairy and every situation. Be sure to work with an aggregator to determine project eligibility and define actual values and financial returns.
Beware. Carbon trading is not to be entered into lightly. research potential partners and the market before agreeing to anything.
“It is very important that you understand the terms of the contract, that you understand what you are committing to,” says Russ Evans, policy and operations manager of the Northwest Direct Seed Association based in Moscow, Idaho.
Talk to other producers and people with experience with carbon credits and working with aggregators. Ask for references, just as if you are hiring a builder, suggests Connie Patterson, Patterson Dairy, Auburn, N.Y. “You have to keep your foot in the water and keep learning.”
Much more information and resources are available at: www.dairyherd.com/industry.
Currently, the U.S. operates under a voluntary carbon-trading system. and that is reflected in carbon credit prices — currently about $5. Still, that’s more than twice the $2 Patterson Dairy, Auburn N.Y., received from the market nearly three years ago. Just like the milk futures market, as more participants join, the deeper the carbon credit market becomes. And as a new market, it is constantly evolving.
Carbon credits traded in the United States can either be sold through private trades or use the Chicago Climate Exchange (CCX). This exchange began as a pilot project in 2003 that’s grown to more than 400 members. It includes manufacturing firms, plus municipalities, utilities, universities and more. Emitting exchange members make voluntary, but legally binding, commitments to meet annual GHG reductions. Those who reduce below the targets have surplus allowances to sell or bank; those who emit above the targets comply by purchasing CCX contracts.
One exception to voluntary trading is the Regional Greenhouse Gas Initiative, which is a cap-and-trade program that will begin to regulate carbon dioxide emissions from electricity production in 10 New England and Mid-Atlantic states in 2009.
Cap-and-trade systems are regulated. Carbon dioxide emissions are limited through a permitted system. Stakeholders buy and sell rights to the permitted emissions via credits. But since this system is government-mandated, the credits are more valuable than in a voluntary system. Carbon credits on the regulated European Climate Exchange settled for more than $40 in July.
“These are two different registries, and people will have to choose which way they want to go in the long run,” says Jenifer Wightman, private consultant to the Central New York Resource Conservation and Development Project, Inc.
Glossary of terms
The carbon economy comes with its own vocabulary. Here are definitions of several common carbon-related terms that you need to know.
Aggregator: An entity that acts as the administrative representative to pool the efforts of offset project owners for one or more offset-generating projects or practices. Most producers will want to work with an aggregator rather than take on these administrative tasks. An aggregator is affiliated with a registry.
Cap-and-trade systems: Regulatory programs that cap harmful emissions by limiting them through a permitting system. The program also distributes the emissions permitted to different stakeholders (via allowances, permits or credits). These stakeholders can buy and sell the rights to the permitted emissions after initial distribution. The goal of the cap is to prevent further increases in net emissions. The Kyoto Protocol is an example of a cap-and-trade agreement.
Carbon dioxide equivalent (CO2e): All greenhouse gasses are converted to CO2e for marketing purposes and measured in metric tons for consistency. CO2e is equal to 2,204.62 pounds of CO2.
Carbon offset: Avoiding a carbon emission in one location by implementing an emissions-reduction project or practice in another location.
Carbon sequestration: The net process of storing carbon in a carbon sink.
Carbon sink: Place where carbon is stored or sequestered — like in soil, plant matter, oceans and deep geologic formations.
GHG: An abbreviation for greenhouse gases. Carbon dioxide, methane and nitrous oxide are the big three for agriculture. Carbon dioxide is considered the baseline; methane is considered 21 to 23 times more potent that carbon dioxide, and nitrous oxide 310 times more potent that carbon dioxide in its ability to retain heat in the atmosphere.
Registry: An accounting infrastructure that labels registered offsets with a serial number, tracks the sale to a buyer and retires the credits once they have been used to offset GHG emissions. A registry may be affiliated with an exchange, but may not be an exchange itself.