Cummins, James L.

English

Research Papers in Economics

2008 Agricultural Outlook Forum 
Thursday, February 21 
 
  AGRICULTURAL CARBON AND GREENHOUSE GASES: 
  MOVING TO MARKETS 
 
  James L. Cummins 
 Executive  Vice-President 
  The Carbon Fund 
 Stoneville,  Mississippi 
 
 
SPEECH: Thank you Madam Secretary. It is an honor to be here with you today as well as the 
distinguished speakers on this panel. I first met Melissa when she worked on the Hill for 
Chairman Scott McGinnis; he was in charge of the Healthy Forests Restoration Act. Melissa 
played a large role in the passage of that bill and many Americans owe her a debt of gratitude for 
that. 
 
Deforestation accounts for roughly 20 percent of global greenhouse-gas emissions. Because of 
this, the United States is enhancing its efforts to conserve and expand the world's forests. To do 
so, we must reduce the threat of wildfire and the resulting emissions from that wildfire, which is 
also a primary goal of the Healthy Forests Restoration Act.  
 
Much like the Healthy Forests Restoration Act, carbon sequestration is not just about the 
environment, it is about trade, rural development, foreign relations and good economics. For 
example, three zero emission FutureGen plants are equal to the carbon sequestered by 1 million 
acres of bottomland hardwood forests enrolled in the Conservation Reserve Program (CRP) in 
the Mississippi River Valley. The additional incentives to make CRP work cost $13.3 
million/year over 15 years; three FutureGen plants cost $5.4 billion and have the same reduction 
in carbon emissions. 
 
Like CRP and the benefits of it, carbon can be one part in a program that provides a number of 
ecosystem services for the market. Last month, an 1,800-acre tract of land along the Mississippi 
River sold for $3,300/acre, primarily to be used for deer hunting; 15 years ago, one could have 
purchased that land for $6-700/acre. The State of Mississippi is suing the City of Memphis over 
water; water credits might be one solution to that dilemma. It could also be very important to 
solving the problems of Gulf hypoxia and we will learn more about that later. 
 
Carbon trading is one of the fastest growing specialties in the financial services industry and is 
expected to grow to $1 trillion in the next decade. London's Financial World says it will be the 
world's largest commodity. 
 
As we move to markets – for whatever interest – we must first develop the rules by which carbon 
is sequestered. When it comes to soil, grass and forest carbon, jurisdiction should be the 
Agriculture Committees and oversight should be provided by the Department of Agriculture. 
After all, between the committees and the department, they have designed the most successful   2
private lands conservation programs in the world. Let's continue them. 
 
How we develop carbon programs is very important. It should be about cooperative 
conservation, wetlands restoration, reducing hypoxia in the Gulf of Mexico, improving habitat 
for neotropical, migratory birds, threatened and endangered species and producing biomass for 
energy and biofuels. All of this can be combined on the same acre. Unfortunately, to date, we 
have not done a very good producing all of these benefits on the same acre. 
 
The financial markets are somewhat ahead of the regulatory mechanisms. The New York 
Mercantile Exchange (NYMEX), under Jim Newsome's leadership, recently announced the 
formation of their Green Exchange, which will be a Commodity Futures Trading Commission-
regulated exchange. Some of you may know Jim; he is a Mississippian and the former chairman 
of the Commodity Futures Trading Commission. 
 
As I mentioned, less developed are the rules and regulations for what will legally qualify as a 
greenhouse gas emission reduction and what won't. I am pleased that the Farm Bill, at the urging 
of the Bush Administration, has included funding for the development of uniform standards for 
quantifying environmental services, establishing credit registries and evaluating audit and 
certification options. That is so important. USA Today and London's Financial Times recently 
reported of “companies and individuals spending on carbon projects that have few, if any, 
environmental benefits.” That is a quick way to kill the offset market. 
 
Let me discuss some regulatory items we need to consider that will help us further the carbon 
market. 
 
From a forests perspective, afforestation, reforestation, forest management, forest products and 
forest conservation should qualify. But, only if they are clearly defined and transparently 
measured. 
 
There is a lot of discussion about sustainability. It is the goal, and sequestration under such, 
should be recognized as a premium, not a prerequisite. In many instances, carbon can be from 
sustainable lands, as indicated by certification or some other acceptable method. 
 
When it comes to measuring and monitoring, carbon stocks should be measured and monitored 
in a transparent, scientifically credible manner. A defined level of accuracy and precision should 
be required to satisfy the market and regulators. However, we should avoid excessive 
requirements that create costs out of proportion to the value of the carbon credits. 
 
Issues regarding reporting include data requirements and frequency of the reporting. There is a 
balance among reporting, transparency and the costs of the reporting. 
 
Additionality is the amount of carbon sequestered when one calculates the amount resulting from 
the project activities as compared to the amount that would have normally occurred without the 
project. There must be a baseline, or basis, against which carbon stocks can be measured. A base 
year approach is the most scientifically-based and valid method for determining carbon changes.   3
 
Regarding permanence, to the extent practicable, forest carbon credits should be maintained in 
place for long periods of time. Where that is not possible, short-term contracts (5 to 15 years) 
should be utilized. 
 
Equivalence and leakage are also important issues. Carbon stock changes are derived from 
sampling techniques just a like a timber cruise. Therefore, the accuracy of them is lower than the 
accuracy of an emission measurement. Should carbon estimates be adjusted to account for this? 
Probably. Each individual registry should account for this. This may be based on the precision of 
the forest inventory and the growth model for the forest. Most registries require a 10 to 20 
percent discount rate, which is an excessive transaction costs to get the necessary assurances. 
Reducing these transaction costs is a necessary step in making carbon sequestration function 
efficiently. 
 
The USDA Forest Service is uniquely positioned to enhance the role of forest management in 
carbon markets. The Forest Service could create a form of insurance. With the creation of a 
“U.S. Federal Carbon Reserve,” the Forest Service could provide the mechanism by which to 
reduce transaction costs and in turn create more opportunities for private landowners to 
participate in the carbon market. The U.S. Federal Carbon Reserve could originate a stream of 
carbon credits. These carbon credits would be banked to provide guaranteed replacement 
offsets/carbon credits to forests participating in the U.S. Federal Carbon Reserve System. If a 
participating farmer or landowner has sold his or her carbon and experienced a loss, those carbon 
credits lost would be replaced by the Reserve's Bank. The U.S. Federal Carbon Reserve would 
effectively provide a backstop to the private sector. 
 
Very few days go by that I don't get a call from a landowner wanting to combine a Farm Bill 
conservation or forestry title program with a carbon sequestration program. The U.S. Department 
of Agriculture considers all environmental credits generated from one of these titles to be the 
property of the farmer or landowner. But buyers are not always comfortable with that 
relationship. Some programs may work well with carbon sequestration (Environmental Quality 
Incentives Program, Conservation Reserve Program, Healthy Forests Reserve Program) and 
some programs may not (Grasslands Reserve Program, Wetlands Reserve Program). Developing 
a carbon program is not necessarily about more funds and more programs. Integration with the 
existing programs is key. For example, a hardwood/cottonwood interplanting under the CP31 
practice in the Conservation Reserve Program massively accelerates the carbon sequestration 
rate – seven times the sequestration rate of a straight hardwood forest in 15 years. And all this is 
achieved while significantly improving wildlife habitat and providing feed stock for the 
production of cellulosic ethanol. 
 
Research is also a key component to moving the market forward. We need a National Carbon 
Sequestration Research Institute that will:  
 
(a)   Develop and demonstrate optimal methods for sequestering carbon in U.S. 
forests, grasslands and soils;  
(b)   Develop carbon sequestration techniques that restore degraded ecosystems   4
including, but not limited to: native prairie, bottomland hardwoods, wetlands, 
longleaf pine and other ecosystems in need of restoration;  
(c)   Monitor and incorporate new carbon sequestration developments in science and 
commercial applications occurring elsewhere in the world;  
(d)   Monitor treaties, laws and policies to develop new opportunities for the U.S.;  
(e)   Develop and propose appropriate institutional arrangements, business initiatives 
and related activities to promote and enhance rapid commercialization of carbon 
sequestration in forests, grasslands and soils by the private sector; and  
(f)   Develop an aggressive outreach and technology transfer program to promote and 
enhance the commercial application of carbon sequestration technologies 
throughout the U.S.  
 
This would create a world-class, science-based, multi-disciplinary research, development and 
applications institute that develops the knowledge and policy advice needed to implement 
cost-effective greenhouse gas capture, storage and mitigation technologies. 
 
Soils, grasslands and forests can be expected to play a large and necessary role in mitigating 
climate change before bold new technologies are fully defined, made operational and are able to 
reduce energy demand and consumption significantly.  Permitting more dangerous levels of 
carbon emissions to be reached – by developed or developing economies – before large new 
technology is deployed is not acceptable. Thus, the positive impact of enabling enhanced land 
management is disproportionately large regarding both climate change mitigation and reducing 
ultimate capitalization costs for the implementation of advanced low-carbon technology. 
 
 
 

Agricultural Carbon and Greenhouse Gases: Moving to Markets

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