Agriculture and Forestry Provisions in Climate Change Legislation (S. 3036)

Agriculture and Forestry Provisions in Climate Change Legislation (S. 3036)

Order Code RS22834
Updated June 3, 2008
Agriculture and Forestry Provisions in
Climate Change Legislation (S. 3036)
Renée Johnson
Specialist in Agricultural Policy
Resources, Science, and Industry Division
Summary
This report summarizes some of the domestic agriculture and forestry provisions
in the Lieberman-Warner Climate Security Act of 2008 (S. 3036, formerly S. 2191), as
ordered reported out of the Senate Committee on Environment and Public Works in
December 2007. The bill directs the Administrator of the U.S. Environmental Protection
Agency to establish a program to decrease greenhouse gas (GHG) emissions. The bill’s
cap-and-trade framework establishes a tradeable allowance system that includes a
combination of auctions and free allocation of tradeable allowances. As part of this
overall framework, S. 3036 includes three design mechanisms that may provide
financial incentives to encourage land-based agricultural and forestry activities. These
include provisions on carbon offsets, set-aside allowances, and auction proceeds.
In the 110th Congress, several proposals have been introduced that would either
mandate or authorize a cap-and-trade program to reduce greenhouse gas (GHG)
emissions. A cap-and-trade program provides a market-based policy tool for reducing
emissions by setting a cap, or maximum emissions limit, for certain industries. Sources
covered by the cap can choose to reduce their own emissions, or can choose to buy
emission credits that are generated from reductions made by other sources. This type of
market-based approach to GHG reductions and trading would be similar to the acid rain
reduction program established by the 1990 Clean Air Act Amendments.1
Among the cap-and-trade proposals introduced to date, none includes the agriculture
sector as a covered industry subject to emission reductions under the cap.2 In part, this
may reflect the general consensus, as stated by the House Energy and Commerce
1 For more information about the GHG legislative proposals and the carbon offset provisions in
these bills, see CRS Report RL33846, Greenhouse Gas Reduction: Cap-and-Trade Bills in the
110th Congress, by Larry Parker and Brent D. Yacobucci; and CRS Report RL34067, Climate
Change Legislation in the 110th Congress, by Jonathan L. Ramseur and Brent D. Yacobucci.
2 Some GHG bills give authority to the U.S. Environmental Protection Agency to determine
covered entities, which could potentially expand the types and number of entities covered.

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Committee, that GHG “emissions from the agriculture sector generally do not lend
themselves to regulation under a cap-and-trade program,” given the “large number of
sources with small individual emissions that would be impractical to measure.”3
However, several of the cap-and-trade proposals do incorporate the agriculture and
forestry sectors either as a source of carbon offsets4 or as a recipient of set-aside
allowances.5 Some bills also specify that the proceeds from auctioned allowances be used
to promote certain objectives, which could further encourage farmland conservation and
bio-energy technologies and practices, among other activities.
Inclusion of such provisions in the broader cap-and-trade proposals could benefit the
U.S. agriculture and forestry sectors. For example, the offset and allowance provisions
would allow farmers and landowners to participate in the emerging market by granting
them use of allowances and credits for sequestration and/or emission reduction activities.
These allowances and credits could be sold to regulated facilities (e.g., power plants)
covered by a cap-and-trade program to meet their emission reduction obligations. The
proceeds from the sale of these allowances and credits, as well as proceeds from auctions
that fund technology deployment, are intended to further promote and support activities
in the agriculture or forestry sectors that aim to reduce, avoid, or sequester emissions.
In the Senate, for example, a bill ordered reported by the Senate Committee on
Environment and Public Works (EPW) in December 2007, the Lieberman-Warner
Climate Security Act of 2008 (S. 3036, formerly S. 2191),6 contains several agriculture-
based provisions. A summary of these provisions is provided below. Overall, S. 3036
directs the Administrator of the U.S. Environmental Protection Agency to establish a
program to decrease GHG emissions under a cap-and-trade framework.7
Agriculture and Forestry Provisions
The cap-and-trade framework outlined in S. 3036 establishes a tradeable allowance
system that includes a combination of auctions and free allocation of tradeable
allowances. As part of this overall framework, S. 3036 includes three design mechanisms
that may provide financial incentives to encourage land-based agricultural and forestry
activities: carbon offsets, set-aside allowances, and auction proceeds. In this context, a
carbon offset refers to a measurable avoidance, reduction, or sequestration of CO or
2
other GHG emissions, expressed in carbon-equivalent terms. A set-aside allowance
3 Committee on Energy and Commerce, “Climate Change Legislation Design White Paper: Scope
of a Cap-and-Trade Program,” prepared by committee staff, October 2007, available at
[http://energycommerce.house.gov/Climate_Change/White_Paper.100307.pdf].
4 Among the GHG bills that provide for agriculture and/or forestry offsets are S. 3036
(Lieberman/Warner), S. 280 (McCain/Lieberman), S. 317 (Feinstein), S. 1168 (Alexander/
Lieberman), S. 1177 (Carper), S. 1766 (Bingaman/Specter), and H.R. 620 (Olver).
5 Primarily S. 3036 and also S. 1766 (Bingaman/Specter).
6 On June 2, 2008, the Senate invoked cloture on S. 3036 and will proceed to debate the bill under
unanimous-consent agreement.
7 This analysis is based on legislative text in S. 3036 as of May 20, 2008, and does not include
changes from possible amendments that may be considered by the Senate.

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refers to a set percentage of available allowances under the overall emissions cap that is
allocated to non-regulated entities, in this case domestic agriculture and forestry entities.
For auction proceeds, this refers to the set percentage that is allocated for use to carry out
the cellulosic biomass ethanol technology deployment program.8
Offsets. Title II, Subtitle D (“Offsets”), of S. 3036 provides for agriculture and
forestry offset projects. The agriculture and forestry provisions in this subtitle cover
farmer outreach (Sec. 2401), establishment of a domestic offset program (Sec. 2402),
eligible offset project types (Sec. 2403), project initiation and approval (Sec. 2404), offset
verification and issuance of allowances (Sec. 2405), tracking of reversals for
sequestration projects (Sec. 2406), examination and auditing of offset allowances (Sec.
2407), timing and the provision of offset allowances (Sec. 2408), offset registry (Sec.
2409), certain environmental considerations (Sec. 2410), program review (Sec. 2411),
and retail carbon offset requirements (Sec. 2412). The text box below shows the types
of eligible agriculture and forestry offset projects listed in Section 2403 of S. 3036, which
includes these listed practices or combinations of agricultural conservation practices.
Eligible Agricultural and Forestry Offset Projects (S. 3036, Sec. 2403)
Agricultural/Rangeland Sequestration and Management Practices
! altered tillage practices
! winter cover cropping, continuous cropping, and other ways to increase
biomass returned (other than planting followed by fallowing)
! conversion of cropland, rangeland, or grassland (with conditions)
! reduction of nitrogen fertilizer use or increase in nitrogen efficiency
! reduction in the frequency and duration of flooding of rice paddies
! reduction in carbon emissions from organic soils
Land Use Change and Forestry Activities (changes in carbon stocks)
! limited to afforestation or reforestation of acreage (not currently forested)
! forest management resulting in an increase in forest stand volume
Manure Management and Disposal
! waste aeration
! methane capture and combustion
Other Terrestrial Offset Practices Identified by USDA
! capture or reduction of non-covered fugitive emissions
! methane capture and combustion at nonagricultural facilities
! other actions that result in GHG emissions avoidance or reduction
In general, these types of conservation and farmland management practices are
among existing agricultural and forestry programs that are administered at both the
federal and state levels. Many of these practices are provided for as part of existing
8 In carbon market trading, an offset is a certificate representing the reduction of the equivalence
of one metric ton of carbon dioxide emissions, the principal greenhouse gas. Offsets generally
fall within the categories of biological sequestration, renewable energy, energy efficiency, and
non-CO greenhouse gas emissions reductions. For more information on allowances and auction
2
proceeds in current GHG bills, see Allocations for Carbon Allowances and Auctions under S.
2191, by Brent D. Yacobucci (CRS general distribution memorandum).

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conservation, forestry, energy, and rural development programs under the 2008 farm bill
(P.L. 110-234). These include conservation programs provided for in Title II of the farm
bill, such as the Conservation Reserve Program, the Grasslands Reserve Program, the
Environmental Quality Incentives Program, and the Conservation Stewardship Program,
among others. These programs provide technical assistance and either cost-sharing or
easement payments that, in addition to accomplishing other environmental objectives,
generally encourage land retirement or the types of agricultural practices that can reduce
GHG emissions and/or sequester carbon (Table 1). Other farm bill programs in the
Energy (Title IX) and Rural Development (Title VI) titles authorize loans, loan
guarantees, and grants for energy efficiency and renewable energy systems, including
anaerobic digesters. For more information, see CRS Report RL33898, Climate Change:
The Role of the U.S. Agriculture Sector, by Renée Johnson.
Set-Aside Allowances. Title III, Subtitle G (“Domestic Agriculture and
Forestry”), of S. 3036 directly allocates 5% of the overall emissions allowances to
domestic agriculture and forestry entities (Sec. 3701). This could provide a sizeable
benefit to U.S. producers. Overall, the proposal starts off with 5.8 billion emissions
allowances for CY2012, which phases down to 1.7 billion emissions allowances for
CY2050 (Sec. 1201). A 5% set-aside for domestic agriculture and forestry entities could
give these sectors a significant part of this emerging market — between 290 million and
90 million emissions allowances for qualifying entities, depending on the year.
The agriculture and forestry provisions in this subtitle cover allocation (Sec. 3701),
research (Sec. 3702), and distribution (Sec. 3703). The subtitle does not specify the types
practices that would be applicable. However, it does state that emissions reduction and
increases in carbon sequestration in the agriculture and forestry sectors should be “real,
verifiable, additional, permanent, and enforceable” (Sec. 3701); it also specifies the need
for reductions of both nitrous oxide emissions through soil management, and methane
emissions through feed and manure management (Sec. 3702(a)).
This provision indirectly relates to a new USDA conservation provision that was
included in the 2008 farm bill. This provision would facilitate the market development
of environmental services from the agriculture and forestry sectors, including carbon
storage and tradeable credits, by addressing measurement, quantification, verification,
and enforcement issues, among other related issues. For information, see CRS Report
RL34042, Environmental Services Markets: Farm Bill Proposal, by Renée Johnson.
Auction Proceeds. Title IV, Subtitle D (“Energy Technology Deployment”), of
S. 3036 specifies that 6% of auction proceeds be used to carry out a variety of projects
to promote cellulosic biomass ethanol technology deployment (Sec. 4401, Sec. 4404).
This provision calls for the use of producer incentives, such as loan guarantees and
production payments, to promote the construction of production facilities and supporting
infrastructure for cellulosic biomass. This could benefit U.S. agriculture and forestry
producers that produce transportation fuels from cellulosic biomass using different
feedstocks. This subtitle does not specify the types of practices that would be applicable.

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Considerations for Congress
Many see the involvement of the agriculture and forestry sectors in a climate change
mitigation strategy as an opportunity to further encourage farmers and landowners to
make environmental improvements on their land and to transition to more sustainable
production practices. Nevertheless, inclusion of the agriculture and forestry sectors in a
cap-and-trade program has remained controversial since the Kyoto Protocol negotiations.9
During those negotiations, there was marked disagreement among countries and interest
groups, arguing either for or against the inclusion of offsets from the agriculture and
forestry sectors.10 The text box below lists some of the primary areas of concern
regarding agriculture and forestry offsets and allowances. The EU’s GHG emission
program, the Emission Trading System (ETS), which was established in 2005, does not
provide for agricultural or forestry projects and activities. Among the reasons are (1)
pragmatic concerns regarding measurement and verification, given the sheer number of
farmers and landowners, and (2) ideological concerns about granting too much flexibility
in how emission reductions are met, which could undermine overall program goals.11 For
a more detailed discussion of these issues, see CRS Report RL34241, Voluntary Carbon
Offsets: Overview and Assessment, by Jonathan L. Ramseur, and CRS Report RL33898,
Climate Change: The Role of the U.S. Agriculture Sector, by Renée Johnson.
Agricultural/Forestry Offsets and Allowances: Areas of Concern
! Permanence/Duration — land uses can change over time (e.g., forest lands to urban
development, natural events such as fires or pests);
! Measurement/Accounting — measuring biological sequestration is difficult and
estimates can vary, and actual emission reduction/sequestration depends on site-specific
factors (e.g., location, climate, soil type, crop/vegetation, tillage practices, management);
! Additionality — some activities generating offsets would have occurred anyway under
a pre-existing program or practice, and may not go beyond business as usual (BAU);
reductions may be double-counted or attributable to other environmental goal/ programs;
! Effectiveness — the success of the mitigation practice depends on the type of practice,
how well it is implemented and managed by the farmer or landowner, and the length of
time the practice is undertaken; and
! Leakage — reductions in one place could result in additional emissions elsewhere.
9 See, for example, E. Boyd, E. Corbera, B. Kjellén, M. Guitiérrez, and M. Estrada, “The Politics
of ‘Sinks’ and the CDM: A Process Tracing of the UNFCCC Negotiations (pre-Kyoto to COP-
9),” Feb. 2007, draft submitted for International Environmental Agreements; also see two articles
in Nature, no. 6812, Nov. 2000, “Deadlock in the Hague, but Hope Remains for Spring Climate
Deal,” and “Critical Politics of Carbon Sinks.”
10 Commonly referred to as “land use, land use change, forestry,” or abbreviated as LULUCF.
11 Comments and presentation by Michael Grubb, Chief Economist of the Carbon Trust, during
a Congressional staff briefing, February 29, 2008. Although private parties subject to the ETS
cap cannot purchase LULUCF offsets, EU governments can purchase eligible LULUCF offsets
— i.e., from afforestation or reforestation projects — up to 1% of their state’s base year (1990)
emissions each year (See European Union Directive 2004/101/EC, October 27, 2004; Kyoto
Protocol, Decision 17/CP.7, November 2001). The World Bank reported that global transactions
of LULUCF offsets have only accounted for 6% of this allowable limit.

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Table 1. Current Conservation and Land Management Practices
USDA
Conservation Practice and
Objectives for
General Objectives
Program
Land Management
Climate Change
Conservation tillage and reduced
Improve soil/water/air quality.
Sequestration,
field pass intensity
Reduces soil erosion/fuel use.
emission reduction
EQIP,
Crop diversity through crop
Reduce erosion/water needs.
Sequestration
CSP,
rotations and cover cropping
Improves soil/water quality.
AMA
Efficient nutrient (nitrogen)
Improves water quality. Saves
Sequestration,
management, fertilizer
expenses, time, and labor.
emission reduction
application
Improved soil management and
Improve soil/water/air quality.
Sequestration,
soil erosion controls
emission reduction
EQIP
Manure management (e.g.,
Improve soil/water/air quality.
Emission reduction
CSP
storage/containment, anaerobic
On-farm fuel cost-savings.
AMA
digestion and methane recovery)
Alternative income source.
Othera
Nutrients for crops.
Feed management (e.g., raise feed
Improve water/air quality.
Emission reduction
EQIP
efficiency, dietary supplements)
More efficient use of feed.
CSP
AMA
Rangeland management (e.g.,
Reduce water requirements.
Sequestration,
rotational grazing, improved
Help withstand drought.
emission reduction
forage)
Raise grassland productivity.
EQIP
Windbreaks for crops and
Improve crop/livestock
Sequestration,
CSP
livestock, vegetative/riparian
protection and wildlife habitat.
emission reduction
AMA
buffers, grassed waterways,
Alternative income source
WHIP
setbacks, etc.
(e.g., hunting fees).
FLEP
Agroforestry / silvopasture with
Provide income from grazing
Sequestration,
EQIP
rotational grazing and improved
and wood products.
emission reduction
CSP
forage
AMA
CRP
Land management, including
Improve soil/water/air quality.
Sequestration
WRP
retirement, conversion,
GRP
restoration (cropland, grasslands,
FPP
wetlands, open space)
EQIP
Energy efficiency/conservation
Improve soil/water/air quality.
Emission reduction
CSP
Cost-savings.
AMA
Othera
Biofuel substitution and
Improve soil/water/air quality.
Emission reduction
renewable energy use
On-farm fuel cost-savings.
Alternative income source.
Source: Compiled by CRS staff from USDA and EPA information. Listed programs: Conservation Reserve
Program (CRP), Wetlands Reserve Program (WRP), Grasslands Reserve Program (GRP), Farmland
Protection Program (FPP), Environmental Quality Incentives Program (EQIP), Conservation Stewardship
Program (CSP), Agricultural Management Assistance (AMA), Wildlife Habitat Incentives Program
(WHIP), and Forest Land Enhancement Program (FLEP).
a. Renewable energy projects receive additional program funding in the 2002 farm bill under Title IX
(Energy) and Title VI (Rural Development), as well as other federal and state programs.