Explanation of the relationship between carbon offset projects and carbon credits.
by Hannah Kokjohnand Beth Ulion
Mar 18, 2009
President Obama’s call for a mandatory cap-and-trade system that would reduce carbon emissions by 80 percent by 2050 has Illinois businesses and individuals anticipating tighter pollution limits. As a result, projects that reduce or eliminate carbon dioxide emissions are on the rise.
Van Bitner in his corn field where the use of no-till practices cuts carbon emissions.
Click on graph to see the market prices for carbon credits since March 2008 on the Chicago Climate Exchange.
The volume of new projects is reflected in a sharp increase in trading carbon credits on the Chicago Climate Exchange. In February the number of carbon contracts rose 33 percent to 56,429 from 42,580 in the year-earlier period, a new monthly record for the exchange. Each trade represents an exchange of a carbon reduction for a carbon emission.
One Illinois farmer found that agricultural techniques he was already using on his land qualified him to sell carbon credits on the Chicago Climate Exchange. Since he began developing his offsets projects, he’s received $4,000 from credits he’s produced.
“I’m doing this stuff, if I can get carbon credits and get paid, why not?” said Van Bitner, a corn and soybean farmer in Mason County, south of Peoria, since 1988.
His carbon reducing activities produce about 730 carbon credits, deemed to offset the annual emissions from 134 motor vehicles.
The Chicago Climate Exchange, North America’s only cap-and-trade system for all six greenhouse gases, facilitates the exchange of carbon credits, which are counted in metric tons and produced from carbon offsets projects like wind farms and tree-planting on farmland, to businesses and individuals interested in reducing their carbon footprints. The exchange also facilitates carbon-credit trading between businesses.
The system is voluntary. Companies registered to trade on the exchange have agreed to reduce carbon emissions 6 percent by 2010. If a business cannot reduce its own emissions, it must buy carbon credits, essentially paying for the right to pollute. By buying credits, businesses are theoretically neutralizing their carbon output by funding offsets projects. Individuals can buy credits through exchange brokers to offset their own personal emissions.
Much of Van Bitner’s farmland was classified as land at risk for erosion by the U.S. Department of Agriculture in the 1990s. Implementing no-till farming practices, which prevent the release of carbon dioxide from the soil to the air, to combat soil erosion was the only way for him to stay eligible for government farm programs.
At a local meeting focused on conservation issues, a carbon offset program was described by a representative of the Delta Institute, a Chicago-based non-profit that helps people develop projects and trade carbon credits on the Chicago Climate Exchange.
Bitner recalls thinking: “I’m doing everything they’re saying to do and I could get some money for this.”
To reduce carbon emissions, Bitner selectively tills his land, leaving the stalks of corn or soybeans after harvest instead of exposing the entire field. He plants through the crop residue or into strips of bare soil.
Bitner works about 1,300 acres with these techniques. He also has devoted 100 acres of land to forest and prairie grass restoration.
Even though Bitner has been able to sell carbon credits, he said he hasn’t seen the kind of payoff that he initially hoped for.
The $4,000 his credits brought in does not equal the money he invested in the offset projects, but, Bitner said, there are substantial environmental benefits and the money is the “icing on the cake.”
Bitner’s offsets are overseen by the Delta Institute, which has contracts with over 1300 offsets projects nationwide including over 900 in Illinois, said Bill Schleizer, associate director.
“We got off the ground with a $20,000 grant from the Illinois EPA to help them figure out how carbon markets worked,” he said. With that $20,000, the Delta Institute was able to facilitate the sale of over $2 million worth of credits for participants with offsets projects.
This amount is expected to double this year, he said.
“The tide has really turned and I think with the new political environment that’s in place that’s going to move even faster,” Schleizer said. “Now people don’t look at us like we’re crazy when we propose things, they ask us, when do you think it will be done and how big do you think it will get?”
Anticipation of a federal mandatory carbon emissions trading system is driving up the number of offsets projects, according to Andrew Keenan, marketing and sales director for Verus Carbon Neutral Partnership, an Atlanta-based offsets management company that trades on the Chicago Climate Exchange. The recent flood of projects has decreased demand, he said, and along with the contracting economy, has produced a slump in the market price of carbon credits.
“The reason you’re seeing a price decline is because you’re seeing a large supply and a smaller demand,” Keenan said. “In a booming economy your carbon footprint is getting larger and you need to buy offsets.”
In May 2008, the market price peaked at $7.40 per metric ton. Since then the price gradually has fallen, recently hovering between $2 and $3 per metric ton.
“It kind of went up for a while when Obama talked about cap-and-trade,” Keenan said. If carbon emissions reductions became mandatory, he added, market prices could jump to the $20 range.
