Incentivising the management of soil carbon

Alan Matthews

Outline • General consideration in incentivising soil carbon

sequestration

• Climate policy instruments

• Implications of LULUCF decisions

• Agricultural policy instruments

• Does the CAP 2013 reform present new opportunities?

• The carbon offset market – another way forward?

The issue

• Continuous cultivation has reduced soil carbon

content, sometimes to dangerously low levels

• The opportunity to restore the carbon content of

soils is an important mitigation opportunity as well

as desirable for many other reasons

• There is a very large technical potential for soil C

sequestration

• Sequestration is equally important to emission

reductions in addressing climate change

How much of the technical potential for

abatement is it economic to realise?

Source: MacLeod et al, 2010

A UK example of a MAC –

marginal abatement cost curve

Source: MacLeod et al, 2010

Additionality has two meanings

• Emissions reductions or removals claimed as due to

mitigation activities under the KP need to be ‘additional’.

• In the LULUCF sector, this means that only emissions and

removals due to human activity should be reported,

excluding any contribution due to natural processes.

• Making this distinction can be highly problematic

Additionality in an economic perspective

• Carbon sequestration is considered non-additional if the farmer receives credit for an emission reduction that has already occurred or would have occurred anyway.

• This requirement calls for reductions to be computed as the difference between actual emissions and a baseline scenario intended to capture emissions under business as usual.

• However, predicting an alternative and unobserved emissions trajectory into the future is difficult, making the baseline estimates uncertain.

Permanence and saturation

• Soil C sequestration is finite and easily reversible

• Three ways to tackle this

• Comprehensive soil C accounts at regular intervals, farmers paid

for sequestration but must pay for emissions

• Discounted payment

• Carbon rental payments (but leaves uncapped soil C sources)

Leakage

• Leakage occurs when the sequestration actions cause

responses that also have GHG consequences

• Less production due to lower yields or taking land out of production

• Sequestering C may increase emissions of other gases

• Scientific evidence of effects of conservation tillage on yields

mixed, varies by soil type

• Possible to address using discount factors

Changes in soil carbon must be measurable

and verifiable

• Measurement costs

• High expressed in terms of cost per tonne CO2 potentially

sequestered (see Ancev, 2011 for estimates excluding monitoring

and verification costs)

• Verifiability

• What standard is acceptable?

Commission proposed Energy and Climate

Policy Framework to 2030

• Overall reduction target of 40% in 2030 compared to 1990

• Divided between ETS sectors (43% reduction) and non-ETS

sectors (30% reduction, both compared to 2005)

• Effort-sharing between MS in non-ETS sectors allocated using

distributional criteria

• Separate renewable energy target of 27% but only for EU

as a whole

Commission proposed Energy and Climate

Policy Framework to 2030

• Treatment of agriculture and land use

• Currently, non-CO2 emissions counted under ESD in

non-ETS sector

• LULUCF emissions and removals excluded from EU

targets but included in EU’s international commitments

• “Further analysis will be undertaken with the aim

of assessing the mitigation potential and most

appropriate policy approach which could, for

example, use a future Effort Sharing Decision

governing the non-ETS GHG emissions or an

explicit separate pillar, or a combination of both.”

LULUCF accounting rules

• New rules entered into force 8 July 2013

• Builds on the decision by UNFCCC parties in December 2011

to revise accounting rules for GHG emissions and removals

from soils and forests

• Phases in mandatory accounting for grassland management

and cropland management at the level of Member States.

• Accounting for the draining and rewetting of wetlands will

remain voluntary, as in the international context.

• Requires Member States to report on their actions to increase

removals and decrease emissions of GHG from activities

related to forestry and agriculture.

• LULUCF targets will only be set once the accounting rules

have been validated.

Agricultural policy measures

• Cross-compliance

• The new green payment in Pillar 1

• Rural development measures in Pillar 2

• Other measures (Nitrates Directive, Water Framework

Directive, Habitats Directive, Birds Directive etc)

What changes/opportunities

introduced by CAP 2013?

Policy options –

protection vs. enhancement

• “The EU Climsoil project (Schils et al., 2008) identified

that the most effective option to manage soil carbon in

favour of climate change mitigation is to preserve existing

stocks in soils rather than attempt additional carbon

sequestration. This holds true especially for the relatively

large stocks in peat and specific mineral soils with a high

content of organic matter, e.g. permanent grassland.”

- Alterra et al., 2011

Protection of permanent grassland • Article 45 DP Regulation

• Replaces GAEC 7 Protection of wetland and carbon rich soils including a ban of first ploughing

• Member States shall designate permanent grasslands which are environmentally sensitive in areas covered by the Habitats or Birds Directives, including in peat and wetlands situated in these areas, and which need strict protection in order to meet the objectives of those Directives.

• Member States may, in order to ensure the protection of environmentally valuable permanent grasslands, decide to designate further sensitive areas situated outside areas covered by these Directives, including permanent grasslands on carbon-rich soils. Farmers shall not convert or plough permanent grassland situated in these areas designated by Member States.

Protection of permanent grassland

• Article 93, HZ Regulation

• Under cross-compliance rules in 2015 and 2016,

Member States must ensure that land which was

under permanent pasture in farmers’ area aid

applications in 2003 (2004 for EU-10, 2007 for

EU-2 and 2013 for Croatia) is maintained under

permanent pasture within defined limits, with

obligation on individual farmers to reconvert

areas into permanent pasture if ratio is

decreasing

Protection of permanent grassland

• Commission delegated act on permanent pasture

controls under cross-compliance C(2014) 1459

• Where ratio of PP to agricultural area has

decreased in 2014, MS can require authorisation

for conversion of permanent pasture to arable

land

• If decrease > 5%, authorisation is mandatory

• If decrease > 5%, farmers applying for payments

in 2015 will be required to reconvert land to

permanent pasture

GAEC for soils

• Preventing soil erosion

• Maintaining soil organic matter

• Maintaining a good soil structure

• Continue unchanged in 2014 compared to 2009

GAEC standards relevant to soil carbon

2014

version

2009

version

GAEC standard introduced in Ireland, 2009

• “Under GAEC farmers must "maintain soil organic

matter levels through appropriate practices". If a

parcel has been under tillage cropping continuously

for 6 years or more, you must ensure through soil

sampling that organic matter levels are maintained

through the use of appropriate farming practices.

Where organic matter levels are depleted (< 3.4%

organic matter) it may be necessary, depending on

soil type, to adopt farming practices that will restore

organic matter levels in the soil. Compliance with this

requirement will be checked in the course of cross

compliance inspections”.

Pillar 1 Greening measures

• 30% of farmer’s single farm payment paid as a green

payment, conditional on following:

• (a) crop diversification;

• (b) maintaining existing permanent grassland; and

• (c) having ecological focus area on the agricultural area

• OR

• Equivalent practices

• (a) Included in an AEM under Pillar 2

• (b) national/regional environmental certification scheme

• Certification scheme must cover all 3 greening practices

and have equivalent or higher level of benefit

• Up to member state to decide whether to offer this option

Greening measures –

Protection of permanent grassland • Article 45 DP Regulation

• Updating of baseline

• Member States shall ensure that the ratio of permanent

grassland to the total agricultural area does not decrease

by more than 5% compared to a reference ratio to be

established by Member States in 2015.

• If the absolute level of permanent grassland is

maintained, this obligation is deemed fulfilled.

• The obligation can apply at national, regional or the

appropriate sub-regional level or even at holding level if a

Member States wishes. Member States shall notify the

Commission of any such decision by 1 August 2014.

Using Pillar 2 schemes to pay farmers for

carbon sequestration

• The agri-environment-climate measure (Article 28) compulsory for Member States • (other measures include support for organic farming,

afforestation, renewable energy)

• This measure shall aim to preserve and promote the necessary changes to agricultural practices that make a positive contribution to the environment and climate.

• Overall Pillar 2 budget 2014-2020 reduced compared to 2007-2013 by around 13% real terms • MS have options to transfer funds between Pillars

• Minimum 20% spend on Axis 2 (environment and land management) replaced by 30% minimum spend on climate and agri-environment

Using Pillar 2 schemes to pay farmers for

carbon sequestration • Normally, commitments for 5-7 years but this period can

be extended in RDPs

• Payments can only cover commitments going beyond

cross-compliance standards

• Extent to which Member States will use opportunities

unknown until Rural Development Programmes are

approved and published by Commission

Policy efficiency • Two ways in which farmer could be rewarded for soil C sequestration • Per ha payment in return for specific farm practice

• Per t C sequestered

• Former often preferred by authorities because of lower monitoring and transactions costs, and by farmers because of greater certainty

• But because of great spatial variability across farms, the cost per tonne C sequestered can be multiples under per ha programmes

• Suggesting high payoffs to implementing contracts that take account of spatial variability

The dilemma in treating the ‘prodigal son’!

• We are willing to pay for soil carbon because it makes

sense in climate policy terms

• But those who would get the most payment are those who

have most abused their soils in the past

• Should farmers who already adopted the improved

practices (presumably because it was in their economic

interest) receive payment?

Paying for soil carbon sequestration through

carbon offsets

• Under a cap-and-trade emissions trading system, offsets are a reduction in GHG emissions/increase in sequestration realised by an unregulated party that can be used to counterbalance emissions from a regulated party

• Offsets currently allowed in ETS under Joint Implementation/Clean Development Mechanisms

• If LULUCF is not covered under ETS or ESD, could be linked to ETS by allowing LULUCF offsets – compliance offsets

• Note also possibility for voluntary offset market

Arguments for and against

Pro • Would encourage ‘learning by doing’ in developing appropriate

methodologies for MRV for LULUCF activities

• Politically popular as would benefit both ETS sectors and farmers

Con • Need to avoid ‘double-counting’ when reporting on international

commitments

• Allowing farmers to enrol in C sequestration programmes voluntarily is almost certain to enrol those to intend to increase sinks anyway, while producing no incentive to control those who intend to become a large source

Examples of agricultural offset schemes

• Australian Carbon Farming Initiative

• Alberta Carbon Farming Offsets

• United States Chicago Climate Exchange, Climate Action

Reserve

Conclusions

• Commission proceeding cautiously on LULUCF because

of MRV issues

• CAP 2013 rules changes provide optional opportunities

for Member States to protect/encourage soil C storage

• GAEC standards for soil depend on continued basic

payment under Pillar 1

• Both Pillar 2 (payments for environmental services)

schemes and carbon offset markets provide opportunities

for learning by doing

• Despite large doubts about additionality, they should be

encouraged