Carbon Credits for Green Farming

Given up on stocks?  Why not buy carbon?

If climate change legislation is passed, the trading of carbon credits may well be a salve — if not a solution — for New York City’s struggling financial sector.  In this op-ed piece in the Wall Street Journal, New York State Senator Kirsten Gillibrand pushes for cap and trade legislation, noting that carbon could quickly become the world’s largest commodities market.

“With thousands of firms and energy producers buying and selling permits to emit carbon, transaction fees for exchanges and clearing alone could top nearly a billion dollars,” she writes.

It could also be a boon for family farmers, who would be able to cash in on good farming practices. Under cap and trade legislation, farmers practicing techniques that sequester carbon — like, for instance, not tilling soil — would be eligible for carbon credits that they could register and sell on an exchange.

While the carbon credits aren’t worth much, they may rise substantially in value should the U.S. enact cap and trade legislation.  The price of carbon in the U.S. goes for about $3 a ton, dirt cheap by European standards.  In Europe, where the carbon market is far more developed, it has fetched as much as €35 a ton, the equivalent of $52 a ton.

Let’s take, as an example, a pilot program that the Global Emissions Exchange, a New Jersey-based carbon trading platform, launched this year for small Pennsylvania farmers.  According to GEX, no-till cropland in most of Pennsylvania sequesters .6 tons of carbon per acre of land.  A 100-acre “no-till” farm, therefore, would be rewarded for keeping 60 tons of carbon from the atmosphere. At $3 per ton of carbon, the 100-acre farm would earn $180 — before fees — for the sale of carbon credits per year.

It’s a pittance.  However, if carbon trading gains traction — as it has in Europe — the price of carbon could take off.  At €13 per ton ($19/ton), let’s say, the 100-acre farmer could make $1,155 a year in extra income.  At €35, the farmer could make $3,108 extra annually.

With cap and trade legislation, Sen. Gillibrand has hit on what could be a triple win.  Farmers would benefit.  The environment would benefit.  And with a potentially hot new commodity to trade, Wall Street would benefit too.