Washington Insider-- Wednesday

Green Plan Fuels Farm Rush to Profit From Carbon Market

Here's a quick monitor of Washington farm and trade policy issues from DTN's well-placed observer.

Brazil Suspends Import Duties On Soybeans/Products, Corn

Brazil's Ag Ministry announced Monday that the country has suspended import duties on corn, soybeans, soymeal and soyoil through the end of the year as it seeks to rein in commodity price inflation.

The Chamber of Foreign Commerce (Camex) had previously authorized suspension of corn import duties until March 31 and soybean import duties until January 15.

The ministry said the expectation when the original action was announced was that external prices would stabilize. "However, international prices had an upward trend, putting even more pressure on domestic prices," the ministry said. "Domestic prices continued to rise due to the strong external demand and the continued devaluation of the real against the dollar."

Some are expecting that the U.S. could benefit from the action.

CFAP Payment Update

Payments under the Coronavirus Food Assistance Program 2 (CFAP 2) have reached $13.45 billion as of April 18, up from $13.33 billion the prior week.

Payments break down to $6.22 billion for acreage-based crops, $3.42 billion for livestock, $2.55 billion for sales commodities, $1.21 billion for dairy, and $57.1 million for eggs/broilers.

There is a slight increase for CFAP 1 payments as the total still rounds to $10.55 billion. But payments for livestock are now at $5.04 billion ($5.03 billion prior), $2.66 billion for non-specialty crops ($2.66 billion prior), $1.80 billion for dairy ($1.80 billion prior), $930.7 million for specialty crops ($929.7 million prior), $120.7 million for aqua/nursery/flora ($120.6 million prior) as of April 18.

Washington Insider: Green Plan Fuels Farm Rush to Profit From Carbon Market

Bloomberg is reporting this week that President Joe Biden's “green push” in the discussions of Earth Day this week is fueling something of a gold rush across America's farm country as companies seek to profit from a nascent market for pollution offsets.

Examples include butter maker Land O'Lakes and agri-tech firms Indigo Ag and Nori LLC who all have set out to sell carbon credits, produced when farmers adopt practices that reduce emissions. And more firms are moving in, Bloomberg says, with non-profit group Ecosystem Services Market Consortium -- supported by Cargill Inc., General Mills Inc. and McDonald's Corp. -- planning to launch a national carbon market by 2022.

With livestock emitting methane as fertilizers emit gases and tractors burning diesel, agriculture is seen as part of the climate problem with the sector accounting for about 10% of U.S. greenhouse emissions total.

Still, the world's soil may be able to sequester as much as the fossil-fuel emissions from the transport sector globally -- or nearly as much as the carbon dioxide released by the electricity industry worldwide. It's that potential that agriculture firms, big and small, are keen to tap. Buyers so far include Microsoft, North Face and others eager to offset their emissions.

“It's a little bit of a gold rush out there, with a lot of new entrants coming in with a lot of great claims,” said Chris Harbourt, global head of carbon at Indigo, which will be one of the few companies to have credits verified by formal carbon registries. “But do they have the buyers to really back it up?”

The Biden administration has promised to make climate change a top priority and bring down emissions to net-zero by 2050. And the president also has ordered all agencies to come up with a whole-of-government approach to achieving the goal.

USDA Secretary Tom Vilsack touts potential “early wins” from a sector he argues can pivot more rapidly than other major polluters such as power plants, transportation and construction. U.S. agriculture in 2019 was responsible for 629 million metric tons of carbon dioxide-equivalent emissions, up 8 million tons from the prior year, according to EPA. A carbon credit represents a 1 metric ton reduction in carbon dioxide or the equivalent amount in a different greenhouse gas.

Farming is in constant exchange with the atmosphere, Bloomberg notes. Methane emissions from livestock are 21 times more powerful than carbon dioxide. Fertilizers emit nitrous oxide, more potent yet with 300 times the warming impact of carbon dioxide. But crops, pasture grasses and trees take in carbon from the atmosphere and deposit it in roots and soil.

The idea is to re-balance that exchange. Special feeds can reduce livestock emissions and digesters can turn methane from manure into biofuel. Cutting down on fertilizer reduces nitrous oxide. “No till” and reduced-till farming avoids disturbing soil and reduces the emissions from that source. Cover crops planted between growing seasons draw more carbon from the air into the soil and over time may reduce the need for fertilizer.

“For the first time, many different sectors are realizing that you need brown and green to actually do green,” said Erin Fitzgerald, chief executive officer of U.S. Farmers and Ranchers in Action. “We need to lean into the next decade. This is no longer business as usual. We're faced with extreme episodic weather events.”

But it's also far from simple. Startup costs can swamp financial gains so large operators may squeeze out smaller ones and increase farm consolidation. Adding a cover crop costs at least $20 an acre for the seeds and up to $15 an acre to get it planted, according to Indigo's Harbourt.

And there's the question of how to reward farmers like organic growers who are already using these methods. Mark Isbell, an Arkansas rice farmer who has reduced emissions, says he is worried about creating “perverse incentives.”

A coalition of farm groups has suggested one-time payments for early adopters. Environmental groups are split, worrying about paying farmers for steps they might take anyway. Activists are pushing the administration to lay out ambitious goals and detailed plans when it holds its virtual summit with world leaders this week on Earth Day.

However, there are also questions over how to measure carbon sequestration since soil types and climate vary greatly from farm to farm and even within the same plot of land. Verification is an issue, with Indigo so far being one of the few working with the so-called carbon registries that are recognized in voluntary markets.

Registries haven't escaped scrutiny. Nature Conservancy, the top U.S. seller of carbon offsets, said it's conducting an internal review of its portfolio following concerns that it's facilitating the sale of meaningless carbon credits to corporate clients. Pricing is another issue, with wild variations between what companies charge. CME Group Inc., one of the world's largest derivative exchanges, recently started a carbon offset futures contract, accepting credits issued by certain registries.

“It's a voluntary market, it's a developing market, it's a nascent market,” said Ben Fargher, a managing director of sustainability at Cargill, which for now is only using carbon programs to offset its own emissions. “That price discovery is still being discerned.”

Biden officials say they want to move quickly and their climate policy for farmers will be based on voluntary incentives. Robert Bonnie, Vilsack's main climate adviser, posed a scenario in a transition memo in which a USDA carbon bank might spend $1 billion a year to buy farm-related credits.

So, we will see. Secretary Vilsack has experience with these issues, gained in his previous tour as Secretary, so he can be expected to play a strong role in the newly emerging policies -- efforts that likely will be both important and controversial and should be watched closely as they emerge, Washington Insider believes.

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