Carbon Trading

A strong market could benefit duck production.

In 1996, most of the nations in the world gathered to consider the possibility that global climate was changing because of human activity and that it might be wise to take action to alter the trend. The meeting was hosted by Japan in Kyoto.

Simply mentioning the name Kyoto is enough to generate days of debate on the Web site of your choice, but however you feel about climate change and international efforts to control it, recognizing the effects agreements of this kind might have on conservation in the real world is important.

A Market for Carbon

The European Union signed the Kyoto Protocol, thereby committing to practical action.

In spring 2005, the EU established the European Climate Exchange. European governments issued allowances to major industries, which permitted them to emit certain amounts of carbon dioxide (CO2) without penalty. At about the same time, the climate exchange opened.

The idea was to establish a market. Businesses could sell allowances they were not using to other businesses that needed extra allowances. At the same time, companies that found a way to sequester -- or trap -- gaseous carbon could sell captured carbon to companies that were emitting more gaseous carbon than the law allowed.

By taking advantage of the exchange, large carbon emitters essentially pay an entrepreneur to catch some of the CO2 they had released. If demand for trapped carbon increased, the thinking went, the price for a unit of trapped carbon would rise, and there would be more incentive for people to find ways to trap it.

Governments can set a ceiling, or cap, on the overall amount of carbon that could be released into the atmosphere. A cap would be economically painful for a heavy CO2 producer, but others could find ways to trap carbon for profit -- a tempting carrot.

Economists hope the combination might lead to major reductions of CO2 in the atmosphere.

That was the theory of cap-and-trade control of carbon emissions. The practice of carbon trading proved to be more complicated. Between 2005 and 2007, prices for allowances initially rose, but then collapsed because too many allowances had been issued. In 2008, the number of allowances was reduced so the EU can achieve the emissions levels it accepted at Kyoto. Because of the reduction in allowances, prices on the exchange stabilized, until the economic downturn of late 2008 and 2009.

A reduction in manufacturing over the past 18 months has lowered CO2 emissions, which in turn, has cut demand for allowances on the exchange and forced prices down.

Preserving Prairie Potholes

The European program allows companies to use carbon "offsets" to reach their emissions targets. An offset is an effort that reduces carbon emissions somewhere else on the globe, such as a wind-energy installation in Mongolia or a hydroelectric project in Africa. This offset provision in Europe, combined with a state-mandated demand for carbon sequestration in the United States, has created a tiny new trading opportunity -- a market that might help shape the future of waterfowl conservation in the prairie potholes.

Native prairies and marshes can soak up remarkable amounts of carbon. An acre of pristine tallgrass prairie in the Dakotas might contain more than 40 tons of solid organic carbon, more than twice the carbon in an acre of Appalachian Forest. And because it is held underground, prairie carbon can't be touched by fire, flood or most other surface catastrophes. Only the plow can release it.

With the advent of new strains of wheat and genetically modified soybeans, landowners on the native prairies of the Dakotas now have the option of turning over thousands of square miles of native grass. Breaking that sod would release millions of tons of carbon and wreak havoc on the most productive duck nursery in North America. Anything we can do to keep the prairie leaves carbon in the ground and ducks on their nests.

A few years ago, Jim Ringelman and his staff at the Great Plains Office of Ducks Unlimited decided to see whether they could get prairie carbon into the market.

It's a complicated process. Investors who buy "carbon credits" and regulators who keep track of a company's carbon balance want to know for certain how much carbon is under the grass. They also want assurances the carbon will stay where it is and not migrate back into the air somehow as a result of natural processes or because a future landowner decides to plow it up.

Scientists are working to determine how much carbon a given tract of prairie can trap and hold. The quantity depends on the species of plants growing on that prairie and the structure of the soil. Organizations now exist to independently verify the estimates of trapped carbon are accurate so a potential buyer can be reasonably sure the tract of prairie is actually delivering.

The guarantee the tract of prairie and its carbon will remain intact depends on a legal concept known as the permanent conservation easement. When a landowner grants a permanent conservation easement, he restricts the use of his land in some way to benefit its wildlife or its scenic value. The restriction becomes part of the deed, traveling from one owner to the next, permanently constraining the use of the property.

The permanence of the arrangement is important from several points of view: Clearly the carbon trader who wants to buy sequestered carbon is more interested in a ton of carbon that has been permanently locked up than a ton that will eventually be released into the atmosphere. Conservation groups are likewise interested in setting aside habitat forever.

The value of a conservation easement is higher when it is permanent than if it is temporary. If the landowner donates an easement as permanent, he can often claim it as a tax deduction. However, if the easement is later violated, the value of the donation is significantly reduced. In that situation, the IRS might become interested in the difference between the claimed donation and the actual value of the easement.

Making Carbon Benefit Ducks

The D.U. team started by negotiating permanent conservation easements on more than 26,000 acres of native prairie in North and South Dakota. Soil scientists from North Dakota State University analyzed soils across these easements to determine the amount of organic carbon trapped below ground. Then, in an 82-page document, D.U. applied to Scientific Certification Systems, Inc., for verification of the amount of sequestered carbon and the effectiveness of the easements. The independent review found the projects met all 15 required standards, as well as eight optional standards. D.U. had a product to sell.

"We did sell 160,000 metric tons of our offsets to the EcoProducts Fund, which provides some proof that we indeed have a marketable commodity

," Ringelman said.

Whether a strong market for carbon will develop is yet to be seen. The European Union's cap-and-trade arrangement issued so many carbon credits at its start that demand was nearly overwhelmed by supply and the market price dropped to pennies. If the EU tightens its carbon caps over time, that might change, and if the United States adopts a cap-and-trade law, the price of a carbon offset could skyrocket. As it is, there is demand for carbon offsets from people who are looking for ways to balance their carbon emissions.

The idea of carbon trading still generates vigorous debate. Some observers believe the effort to develop a market for offsets is just a way for the wealthy to pass the burden of controlling emissions to poorer people and nations. But if a market emerges, D.U. is well positioned to use carbon in the interest of waterfowl production.

With the threats facing the prairie pothole region, I'll take any edge I can get.

Chris Madson is an avid waterfowler from Cheyenne, Wyo.

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