Montana State University Program on Climate Change and Greenhouse Gas Mitigation

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Montana State University Program on Climate
Change and Greenhouse Gas Mitigation  John M.
Antle Department of Agricultural Econ.
Econ. www.climate.montana.edu Presented to the
Governors Carbon Sequestration Working
Group October 21, 2002, NCRS Office, Missoula
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Hypothesis Agriculture can sequester C in soil
at a cost competitive with other sources of GHG
emissions reductions. MSU research aiming to
test this hypothesis is funded through various
federal agencies, including DOE, EPA, USAID, and
USDA.
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• MSU research also is being funded through the
  Consortium for Agricultural Soil Mitigation of
  Greenhouse Gases (CASMGS), a group of nine land
  grant universities.
• CASMGS research is organized according to four
  focal areas
• processes and mechanisms
• best management practices
• prediction and assessment
• measurement and monitoring
• MSU research focuses on areas 2, 3 and 4.

4

• MSU researchers have various activities related
  to testing this hypothesis
• measurement and modeling of soil C (Perry Miller
  and collaborators, LRES)
• remote sensing methods for measurement of soil C
  (Rick Lawrence and collaborators, LRES)
• N2O emissions associated with cropping practices
  (Rick Engel, LRES)
• rapid methods for measuring soil C and other
  soil properties (David Brown, LRES)
• how soil C is affected by the spatial
  distribution of biomass accumulation (Jerry
  Nielsen, LRES)

5

• MSU Research (cont.)
• economic analysis of soil C sequestration
  (Antle, Capalbo and collaborators, Ag Econ
  Econ)
• policy contract design for soil C
• on-farm costs of soil C
• transactions costs for soil C contracts
• soil C in developing country agriculture
• farm decision support tool for soil C contracts
  (Duane Griffith and collaborators, Ag Econ
  Econ)

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Hypothesis Changing farm land use and management
practices can restore soil C lost from use of
conventional practices
Soil C
Annual average rate of C accumulation (CC
CV)/(T2 T1)
C0
C0
CC
Contract Duration What happens after T2?
CV
Time
T0
T1
T2
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But at what cost can farmers change practices to
increase soil C?And how can farmers be provided
an incentive to change practices?
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Factors Determining the Cost of C Sequestered in
Agricultural Soil

• Farm Opportunity Costs What does the producer
  have to do to increase soil C, and how does that
  affect profitability?
• Change tillage practices?
• Change crop rotation?
• Change fertilizer rates?
• If a producer earns RF per hectare for a
  crop-fallow rotation, and earns RC for a
  continuous crop, the opportunity cost of
  switching from crop-fallow to continuous is (RF
  RC).

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Factors Determining the Cost of C Sequestered in
Agricultural Soil (2)

• Rates of change in soil C associated with a
  change in management
• Changing from one practice to another increases
  soil C at an annual average rate of ?c
  tonnes/ha/yr
• E.g., in Montana, changing from a crop-fallow SW
  rotation to continuous SW gives an average value
  of ?c ? 0.4 t/ha/yr

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Factors Determining the Cost of C Sequestered in
Agricultural Soil (3)

• Measurement Contracting costs
• Measuring ?c for each agroecozone and each type
  of practice
• Monitoring compliance with contracts
• Other transactions costs

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Factors Determining the Cost of C Sequestered in
Agricultural Soil (4)

• Cost of Producing a tonne of C
• (farm opp. cost) contract costs
• (RF RC)/?c contract costs
• E.g. if opp cost 10/ha/yr and ?c 0.4 t/ha/yr
  then opp cost/t 10/0.4 25/t

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Factors Determining the Cost of C Sequestered in
Agricultural Soil (5)

• A contract could specify
• Location (type of soil climate)
• Type of cropping history (SW crop-fallow)
• Type of cropping practices to be used (no-till
  corn beans, or continuous SW)
• How many years
• Carbon rate and price
• Penalty for default
• Commodity versus Service Contracts?

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When is farming soil C profitable? (1)

• Per-acre (or hectare) contract
• Producer receives g/ha/yr for N years to make
  specified change from practice A to practice B
• Producer earns RA without contract, earns RB g
  with contract (less any fixed contracting costs)

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When is farming soil C profitable? (2)

• Per-tonne contract
• Producer receives P/tonne C
• Producer changes from practice A to practice B,
  gets credit for ?c t/ha/yr for N years
• Producer earns RA without contract, earns RB
  P?c with contract (less any fixed contracting
  costs)

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Table 1. Simulated Value of Carbon Contracts to
Montana Grain Producers for Changing from
Crop-Fallow to Continuous Cropping




Net Producer
Payment
Quantity Soil

Cost to

Income per
Farm Opportunity
Hectare
Level
C Sequestered

Buyer

Net Producer
Cost (/MT C)

(/ha/year)
(Million )
(/ha/yr)

(MM
T)


Income (Million )


10

7.61

26.50

201.7

66.4

4

20

12.22

52.95

647.1

303.4

10

30

15.54

78.91

1226.3

639.6

17

40

17.2
8

105.24

1818.6

1063.5

25

50

18.25

131.78

2404.9

1531.2

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Marginal cost of soil C sequestration under a
per-tonne contract in Iowa and Montana
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Estimates of GHG Emissions Reductions Costs from
Other Sources