Imagine being paid $15-35/acre for adopting conservation tillage practices. It could be a whole lot more probable than you think.

In fact, California Gov. Arnold Schwarzenegger took a step in that direction by mandating a 10% reduction in greenhouse gas emissions from California motor fuels. This executive order creates market-based incentives for reducing Greenhouse Gases (GHG) in his state's motor fuels.

Many scientists suspect the accumulation of GHG in the atmosphere — largely carbon dioxide — is causing the planet to heat up. To counteract that, California's Low Carbon Fuel Standard creates a GHG tracking system from field to gas pump. This system rewards fuels produced using less carbon (energy).

Each batch of California ethanol or biofuel will have a tracking number that tallies the carbon totals used to produce it, extending from the field of corn or biomass used to distill it, to its manufacture and distribution. Carbon credits and debits will be traded among farmer groups, utilities and biofuel refiners to meet the law's guidelines.

The fuel standard will apply to all transportation fuels sold in California, with the goal of reducing the “carbon intensity” of transportation fuels by 10% by 2020. Can national standards be far behind?

Already, European power plants and manufacturers are buying about $10 billion worth of carbon credits per year. Canada will pay 210 farmers $2-5/acre to adopt no-till practices. The results: Agriculture could reduce Canada's cost of compliance for its Kyoto targets by 40-60%, says the Saskatchewan Soil Conservation Association.

With the right incentives, U.S. farmers could curb 10-15% of the country's carbon pollution (i.e., GHG), according to Chuck Rice, professor of soil microbiology at Kansas State University and director of the Consortium for Agricultural Soils Mitigation of Greenhouse Gases.

“Currently, a voluntary market through the Chicago Climate Exchange (CCX) awards qualifying U.S. farmers $2-2.50/acre/year,” Rice says. “If the U.S. mandates a ‘cap and trade’ system, the value of carbon would increase. If the value of carbon was similar to that in Europe, the value could reach an estimated $15/acre.”

Agriculture could sell carbon credits earned by producing lower-carbon biofuels, including corn and biomass-derived ethanol and biodiesel. Farmers could also earn payments for no-till that stores carbon underground, for growing switchgrass or even for new CRP acres.

For example, ethanol made from cellulosic biomass such as switchgrass or agricultural waste has 4-5 times fewer GHG emissions than today's corn-based ethanol.

California's Low Carbon Fuel mandate will also reward fuel producers who tap such carbon-saving feedstocks. Those benefits would then accrue to upstream energy feedstock producers, including farmers. All California fuels will compete for these credits, including E10, E85, cellulosic ethanol, plug-in hybrids, hydrogen fuel cells and others.

Here's how it might work: Crops consume carbon dioxide (a primary GHG) and release oxygen. They store the carbon dioxide in their roots, but it's released when farmers plow the field. Under no-till, that stored carbon dioxide remains in the soil (known as carbon sequestration), and GHG are reduced.

The California mandate creates a system of carbon credits where farmers and carbon producers, such as utilities, are rewarded or penalized for the GHG that they create or remove from the atmosphere.

If this model of incentives is adopted nationally, as it's expected to be in Europe, experts anticipate agriculture will be affected.

Already, a Mead, NE, feedlot is structured to capture such GHG credits, should a national low carbon “cap and trade” system emerge. The methane from its 30,000 head of cattle will soon power an adjacent ethanol distillery, replacing the plant's need for natural gas (see diagram, page 32). In turn, the ethanol plant's wet distillers grains feed the cattle. Feedlot odors are virtually eliminated by its manure recycling, and biobased fertilizers are utilized. For every unit of fossil energy input, this carbon capture technology produces 4.73 units of ethanol energy output. The feedlot/ethanol plant complex's lower fossil energy tally should qualify for 150,000-250,000 metric tons of carbon credits per year. The inventor of the technology used at Mead is Prime BioSolutions CEO David Hallberg, who is also the founder of the Renewable Fuels Association. He says California's 1.4 million dairy cows represent a vast resource for similar Low Carbon Fuel systems.

Some observers speculate that similar feedlot or dairy closed systems with ethanol facilities could lure livestock back to the Corn Belt, where corn and ethanol facilities abound. Such examples are just a taste of what ingenuity can devise to meet these new incentives.

How well agriculture competes against other biofuel players to snag these credits remains to be seen.

Time will tell how soon the U.S. adopts a “cap and trade” policy (see sidebar). In the meantime, California is the laboratory for rewarding conservation farming practices in order to restrict GHG.

Heard Of The Chicago Climate Exchange?

More than 200 companies buy carbon credits at The Chicago Climate Exchange (CCX). It trades GHG and pollutants much like other exchanges trade commodities. It's the only U.S. carbon-trading forum. GHG-producing utilities can trade offsets from GHG reducers, like farmers.

Practices like no-till anchor more carbon dioxide beneath the soil (known as carbon sequestration). Farmers who adopt no-till practices and/or seed qualifying cropland to grasses qualify for CCX carbon credits. These credits are aggregated through organizations such as Iowa Farm Bureau.

The CCX is modeled after a sulfur dioxide-reducing market created to reduce acid rain. “We think the CCX will be the largest commodity market in the world when it takes off,” says Ted Dodge of the National Carbon Offset Coalition, a carbon credit aggregator in Butte, MT.

Cap And Trade

“Cap and trade” is jargon entering the vernacular as legislators address global warming concerns.

Cap and trade taps the power of the marketplace to reduce Greenhouse Gas (GHG) emissions in a flexible way. A cap, or limit to GHG emissions, is set by law. Creators of GHG, such as factories or utilities, are then free to buy and sell permits to emit GHG. The cap restricts their GHG emission levels, but the trading allows them to choose the most efficient way to meet those limits.

For example, a utility may buy a credit, created by a farmer who adopts conservation tillage that he sold on the Chicago Climate Exchange. Or the company may invest in technology that reduces its GHG emissions. The marketplace mechanism allocates whether the GHG reduction occurs through the farmer burying GHG beneath the soil surface through conservation tillage, or through reduced factory emissions. Either way, the mandated net reduction of GHG is accomplished.

Cap and trade is used by Canada to help meet its obligation to the Kyoto Protocol.

In the absence of U.S. federal GHG limits, two populous states (with Republican governors) have initiated their own measures: New York is leading an effort to institute a regional cap-and-trade system for GHG emissions among Northeastern states. California has instituted a law limiting cars' greenhouse emissions.

In January, 10 major U.S. companies united to call for a firm nationwide limit on carbon dioxide emissions said to cause global warming. The group includes DuPont, Caterpillar, British Petroleum, Alcoa, General Electric, four utilities and four environmental groups. At that time there were four Democratic proposals before the Senate to limit carbon emissions and create a cap and trade system.

The next Farm Bill may include incentives for farmers who reduce GHG through conservation tillage, planting cropland to grasses or installing methane capture technology in livestock facilities. Conservation tillage and cultivating grasses anchor atmospheric GHG below the soil surface (known as carbon sequestration). Methane capture channels methane's carbon into energy production.