The objective of the Kyoto Protocol is to stabilize and reduce greenhouse gas (GHG) emissions, mitigate climate change, and promote sustainable development. The Protocol is historic in that it is the first attempt to achieve international agreements to mitigate global climate change through reduction in GHGs, and the first to employ the flexibility of the global market place for global environmental management. The Protocol emerged first as a framework agreement, but through international negotiations it is progressing into sets of legal articles. These impose obligations on all signatories, but they also identify opportunities for improved environmental land management at local, national and international levels.

The Kyoto Protocol recognizes the overwhelming importance of controlling and reducing GHG emissions (sources) which currently come primarily from industrial and transportation sources, but it also recognizes the corresponding opportunities to be gained through better management of carbon (C) reservoirs and enhancement of C sinks (sequestration) in forestry and agriculture. These latter aspects are achieved through better management of land use change (conversions) and improved local land management. Thus, the Protocol is an excellent opportunity to promote local, national and global soil conservation, and develop networks and partnerships for global environmental management. It is a classic “win-win” situation.

Co-Benefits of Carbon Sequestration and Soil Conservation.

Lands in agriculture and forestry are important pools in the global C cycle, and the management practices used can determine whether these lands are sources or sinks of C. For example:

• Management factors to increase SOC must increase organic matter inputs to the soil, and decrease decomposition of soil organic matter (SOM) and oxidation of SOC. Such practices include reducing tillage intensity, decreasing the (bare, cultivated) fallow periods, using a winter cover crop, increasing rotation cropping, particularly with legumes, ensuring balanced soil fertility and nutrient management, restoration and preservation of wetlands, and restoration and maintenance of marginal lands in pasture or forests, etc.

• Human induced soil erosion and desertification, burning of crop residues, grassland degradation, wetland reclamation for agriculture, low water use efficiencies, organic matter and fertility loss, excessive tillage particularly with the moldboard plow and disk harrow, etc. are sources of C emissions.

Increasing the level of soil C (organic matter) can provide considerable environmental and production co-benefits:

• Increased organic matter improves soil aggregation, which in turn improves soil aeration, soil water storage, reduces soil erosion, improves infiltration, and generally improves surface and groundwater quality.

• Increasing the SOC content of soil through sequestration improves nutrient cycling by stimulating soil biology and biodiversity. This stimulates the decomposition rate, enhances the nutrient supplying power of the soil, and reduces the need for external inputs such as fertilizers.

• In addition, the increased water storage capacity and improved soil fertility provides some degree of mitigation against droughts and crop failure in dry years.

• The amount and quality of SOM is an important indicator of soil quality and ecosystem health, and healthy ecosystems are essential for improved human health.

Loss of soil C can be reversed by less intensive cultivation practices, including zero tillage, diversifying crop rotations and using legumes, and good soil fertility and nutrient management:

• Average global C sequestration rates for reconverting agricultural land to forests and grassland (permanent cover) are estimated at 300 - 400 kg C ha-1yr-1. An estimated sequestration rate is 300 kg C ha-1yr-1 in the first 20 years, and about 400 kg C ha-1yr-1 thereafter for the next 80 years.

• Converting from conventional to zero tillage and improving crop rotations and soil fertility management can result in C sequestration from about 250 - 750 kg C ha-1yr-1 for a minimum of 25 – 30 years.

• The IPCC guidelines suggest an increase of 10% for conversion from conventional to zero tillage. This factor can be applied to a depth of 30 cm and over a period of 20 years.

• The main benefits come through a combination of zero tillage coupled with crop rotations and soil nutrient management. Minimal benefits are observed with reduced tillage.

• The potential for C sequestration through restoration of degraded lands is about 500 - 1000 kg C ha-1yr-1.

Adoption of zero tillage is currently about 30% in Canada and the US, and just over 50% in Brazil. Much of the increased adoption is occurring in regions where zero till is evolving from an “input” technology to a “process” technology. Experience in Argentina and Brazil shows that rates of return are higher when zero till is combined with compatible technologies such as improved water management, more complete rotations including forages and legumes, nutrient cycling, crop residue management and interactions with soil microbiology and rhizoecological principles, integrated pest management, predator-parasite interactions, etc.

Costs and Values of Sequestered Carbon

Carbon sequestration must be economically feasible if the gains made under soil conservation are to be permanent. If lands under conservation tillage are returned to conventional cultivation then the gains in SOC and SOM may be lost.

Global, national, and regional C markets are evolving in the US, Europe, and Asia. However, the prices being offered for a certified C credit (one t CO2 equivalent ) are highly variable, indicating that the market is still very immature. Although governments have major roles in developing the market by regulating policy and directly and indirectly setting the price through subsidy payments and other interventions, the current action of governments in the evolution of these markets is not clear. Thus, it remains difficult to judge whether current market prices will be sufficient to entice farmers to make the necessary changes in land management to ensure sufficient sequestration to meet Kyoto requirements.

Regardless of the uncertainty, there is a good deal of interest in participating in the potential global C trading market. For example:

• Twenty five companies from energy, industry, farm and forestry sectors are cooperating to establish the Chicago Climate Exchange for trading credits in GHGs. In Europe, the UK and Denmark have legislated trading systems, and the EU has set up a GHG allowance trading system, the first pilot transaction of which took place in February, 2003.

• Over 65 trades involving 50 – 70 Mt of CO2 equivalent have been traded since 1996 in Europe, with emission reductions trading for between US $0.60 - $3.50 per t.

• Tokyo Electrical Power has invested US $5 M in reforestation in Tasmania expected to yield 130 Kt of C credits (equivalent to US$38 per t C). Other corporations such as BP, Plc, and Royal Dutch Shell launched their own cap and trade programs in 1998 to cut emissions.

• The Prototype Carbon Fund, developed by the World Bank for purchase of emission reductions (ERUs) from industry, has priced one t of emission reductions at US$3 per t CO2 equivalent. Currently, the same price range is being considered by the proposed BioCarbon Fund for purchase of credits (CERs) from C conservation and sequestration activities in forestry and agriculture.

• Monitoring of the rudimentary C market in the US indicates values often coming in as low as US$2.50 - 5.00 per t CO2 equivalent.

• Costs to create one tonne of C credit were recently analyzed in a study in Saskatchewan, Canada, based on implementation costs of various government sponsored land management programs and the amount of C sequestered as a consequence. These ranged from US$ 6.30 – 18.70.

• The real value of sequestered C (identified as external costs or opportunity costs) has been calculated for Europe at US$ 115 to 277 per tonne C. However, the C trading price being set by the market is generally in the range of US$ 10 - 25 per tonne.

• The potential addition to gross farm income in the US from C sequestration has been calculated at between US $100 M to 4 B. In Europe, this estimate is between US $27 M to 223 M. Some analysts suggest that C could increase net farm income by about 10%.

The key factor in whether agriculture will be competitive in mitigating climate change is the opportunity costs of C sequestration (and the opportunity costs of reducing emissions of CH4 and N2O). Although the estimated annual value of C to agriculture is calculated to be in excess of $50 per tonne, the initial signals from the market is that prices will range between $10 - 25 per tonne and sometimes lower. These prices may be attractive to farming systems with small marginal profits, but they may not be sufficient to stimulate change in land management for high value systems. In many cases they will be marginal compared to the production benefits from soil conservation. However, this is a very preliminary analyses from a very juvenile market.

Conclusions

Carbon pools consist of above ground biomass, liter and woody debris, below ground biomass, soil C, and harvested organic materials. C sequestration is the C locked up in soil or plant materials, providing these are permanent or semi-permanent pools. Currently, C sequestration can mitigate about 20% of global atmospheric GHG accumulation. Although this is a significant contribution, it is worthwhile only if these activities are part of a national action plan that includes emission reductions. Although C is an important GHG and the basis for negotiations under Kyoto, other GHG such as CH4 and N2O are also important for agricultural activities.

There are agricultural and environmental co-benefits of soil conservation and C sequestration, and these can be implemented immediately using known technologies of soil conservation. These provide a window of opportunity to buy time for perhaps the next 50 years, pending large scale delivery of emission reducing technologies such as low emission vehicles and hydrogen based fuel cells. However, the global market for C will have to be more proactive in recognizing the on-farm costs of C sequestration. Current price levels may be adequate for farmers who have already made the change from conventional to conservation agriculture, but they do not create much incentive for those contemplating the switch.

Mobilizing the hundreds of millions large and small scale farmers in the world to adopt soil conservation technologies and sequester C for the benefit of society will be a major undertaking. It will require global partnerships involving business, farmer associations, NGOs and governments working collectively toward goals that are beneficial to all. A fair, equitable, and accountable global market place that is willing to pay a fair price for the accrued environmental benefits of C sequestration, will be central to the system.

Even with all the production and environmental co-benefits, the process of C sequestration involves manipulation of natural ecosystems and this implies some negative as well as the positive impacts. Some of the negative impacts identified thus far include the possible increased applications of pesticides and fertilizers that may be required to get the desired level of efficacy. This may impact on production costs, environmental quality, and increased human exposure to pesticides. Similarly, there may be some increased deterioration of water quality, particularly from excess nitrogen fertilization and increased solubility of phosphorus and some micro-nutrients in soil drainage waters. Although all potential negative impacts have not been documented and overall their impacts are estimated to be minor, it is important that they be recognized and costed as part of the movement towards holistic soil management.

The evolution of global, national and regional C markets, as well as deliberations in the Intergovernmental Panel on Climate Change, describe C as a commodity. This implies that C has economic value, and that participation in this market will require contracts based on a per tonne payment mechanism. This carries associated costs in terms of precision of measurement, monitoring, evaluation and certification. However, sequestered C is important for mitigation of climate change. This has value as a public good, this may be greater than its value as a commodity, and the assessment can be achieved by monitoring change in land management technologies, i.e. per hectare payment mechanism, at much lower transaction costs. These two types of contracts are not exclusive and could operate concurrently in the same region. The first is more suitable for direct contracts with business or corporations which have mandated emission reduction requirements, whereas the latter are more suited to governments or NGOs who have interests to promote public services.

A major issue still to be resolved is how to ensure that those who create the CERs will receive the benefits. C credits gained through sequestration are potentially non-permanent, and thus more complex than those gained from reducing emissions. There are several policy designs that can deal with this. One is to establish contracts with farmers for creation and long term maintenance of the C credit (pay as you go). This implies monitoring and enforcement in the sense that payment received for a credit would have to re-imbursed if the C (or the land management system under which payment was accepted) is not maintained. Another option is to recognize the non-permanent nature of sequestered C and establish variable length contracts whereby the contract holder would be paid a discounted rate depending on how long the C would be kept out of the atmosphere. A third option would be to establish annuity accounts. An individual contractor (farmer) could draw on the income of the account but not the principle. If C is “released” from the account through change in land management, the value would be removed from the principle. In developing countries, these different options could be administered through community trusts or village trusts.

A great deal of analytical work is still required to fully define how the markets will work, the transaction costs, and the discounts due to factors such as uncertainty and non-permanence. Currently the scientific understanding of C sequestration is ahead of the economic analyses, and it remains an international challenge to combine science with good economic analysis to determine policies which will work for the environment and for the farmers implementing them.