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Vouchers they expected to sell are trapped by what Congress might do.
The uncertainty about how Congress will reduce greenhouse emissions is killing the existing market for carbon credits.
Thousands of farmers and landowners nationwide have signed up for programs in the past few years that earned them credits for practices that reduced emissions. The credits then were sold to utilities and other companies that voluntarily decided to offset their emissions of carbon dioxide and other greenhouse gases.
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But the value of the credits traded on the Chicago Climate Exchange collapsed in recent months because of questions on whether the offsets still would qualify as credits under climate legislation pending in Congress, officials with the programs said.
“Political uncertainty has killed the voluntary markets,” said David Miller, who set up a program for the Iowa Farm Bureau Federation to pool agricultural credits from farmers and landowners nationwide.
When they started the program, Farm Bureau leaders believed a thriving carbon market eventually would develop as the government tried to reduce greenhouse gas emissions. They believed it made sense for farmers to be involved early to help shape the trading system.
With the credits now virtually worthless on the exchange, the Farm Bureau program – AgraGate Climate Credits Corp. – has suspended enrollments. What credits are being traded are sold directly to companies seeking offsets.
The second nationwide pooling program for agricultural credits, operated by the North Dakota Farmers Union, is accepting new contracts but drew little interest.
“The price doesn’t look real attractive right now, so there haven’t been a lot of folks interested in new contracts,” said Liz Mathern, a program specialist.
The credits were trading for $2 a ton on the Chicago exchange in March. But the price has dropped to 10 cents or less, not enough to cover the transaction costs of trading the credits.
Both credit programs have started selling directly to buyers, but interest is limited. Of the 3.5 million tons of offsets registered with the Farmers Union program, about 200,000 tons of credits have been sold through direct sales. AgraGate has sold about 1.2 million tons through private transactions. Prices for credits traded under direct sales this month are 75 cents to a $1 a ton, according to records the exchange posts on its Web site.
About 9,000 farmers in 37 states enrolled 16 million acres in offset projects traded on the Chicago exchange. Farms earn credits of about one-half ton per acre for no-till practices, one of the most common methods of earning offsets. Credits also are available for rotational grazing, planting trees or trapping manure methane to generate electricity.
AgraGate suspended enrollments because it made no sense to sign up additional farmers and landowners to multiyear contracts “when there is little indication that the market uncertainty will lift any time soon,” Miller said.
Prospective buyers aren’t interested in purchasing many additional credits when they don’t know whether they would be recognized under a proposed cap-and-trade system, Miller said. He earns credits for growing corn and soybeans on his 400-acre farm without tilling the soil.
Adding to the uncertainty: The Chicago exchange’s rules for credits haven’t been set for beyond next year, he said.
The Iowa Farm Bureau invested about $3 million in AgraGate with the idea that credits’ value would be high enough to cover the costs of pooling, and verifying, he said.
An exchange spokeswoman also attributed the price collapse to “legislative uncertainty.”
The market collapse illustrates the difficulty Congress will have in writing climate legislation that satisfies environmentalists while retaining votes of farm-state lawmakers. Those representatives will be pressured to insist that any law grandfather credits that already were issued under the Farm Bureau and Farmers Union offset programs.
A bill that passed the House in June included provisions that lawmakers said would allow existing offset projects to qualify for credits under a new cap-and-trade system. However, projects registered through the Chicago exchange weren’t specifically grandfathered, hence the market’s uncertainty, Miller said.
Then again, when it comes to the future of climate legislation in Congress, little is certain at this point.
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on Oct 21st, 2009
@ 9:53 am:
It appears that Farmers Union and Farm Bureau need to busy themselves with pushing for legislative language that will include the inclusion of grandfathering the credits (ag, forestry, range, etc.) versus just belly-aching about the price. Otherwise, we all lose.
on Dec 28th, 2009
@ 3:50 am:
Both credit programs have started selling directly to buyers, but interest is limited. Of the 3.5 million tons of offsets registered with the Farmers Union program, about 200,000 tons of credits have been sold through direct sales. AgraGate has sold about 1.2 million tons through private transactions. Prices for credits traded under direct sales this month are 75 cents to a $1 a ton, according to records the exchange posts on its Web site. About 9,000 farmers in 37 states enrolled 16 million acres in offset projects traded on the Chicago exchange. Farms earn credits of about one-half ton per acre for no-till practices, one of the most common methods of earning offsets. Credits also are available for rotational grazing, planting trees or trapping manure methane to generate electricity.