Calgary Herald

HOT AIR COLD CASH

Across Al­berta, a new com­mod­ity has ap­peared out of thin air: car­bon cred­its. In the era of cli­mate change, it’s worth a for­tune — and touches every­one.

- JA­SON FEKETE CAL­GARY HER­ALD STRATHMORE FACT

It’s 8:30 a.m. and farmer Greg Appleyard is busy work­ing the phones and shak­ing hands at his mas­sive agri­cul­tural en­ter­prise just north of Strathmore.

From an of­fice in the bun­ga­low-sized head­quar­ters, he over­sees a mind-bog­gling 8,100 hectares of farm­land and a 25,000-head feed­lot, one of the largest in Al­berta. Cat­tle pens stretch as far as the eye can see; the stench of ma­nure fills the air.

Appleyard steals a few min­utes out of a whirl­wind day to re­ceive a spe­cial de­liv­ery with a much sweeter smell — a cheque for about $100,000.

He earned the money in a gov­ern­ment-ap­proved sys­tem sim­ply for farm­ing the same way he has for years: till­ing his wheat, bar­ley and canola crops fewer times over the course of the grow­ing sea­son.

“This is the fu­ture,” says the smil­ing 34-year-old Al­ber­tan, glanc­ing at the cheque on his desk. “We were lucky we were al­ready try­ing it.”

For a grow­ing num­ber of Al­berta farm­ers, less car­bon is quickly be­com­ing more money in the prov­ince’s fledg­ling car­bon trad­ing mar­ket.

It’s the only one of its kind in North Amer­ica and a pro­gram about to be du­pli­cated on the fed­eral scene by the Harper gov­ern­ment in a so­called cap-and-trade sys­tem — al­low­ing green­house gas emit­ters to buy and trade car­bon cred­its.

Sud­denly, hot air is worth cold cash.

But ques­tions are mount­ing — in­clud­ing from Al­berta’s au­di­tor gen­eral — about the le­git­i­macy of the cred­its, whether this mar­ket will help com­bat cli­mate change, and how it will af­fect con­sumers.

Agri­cul­tural pro­duc­ers like Appleyard are re­duc­ing their car­bon foot­print and cap­tur­ing hot air in their soils, and then sell­ing the provin­cially ap­proved cred­its de­rived from the en­vi­ron­men­tal gains.

On his farm, the soil acts as an emis­sions “sink” that ab­sorbs green­house gases, while changes to farm­ing prac­tices have helped Appleyard re­duce the amount of car­bon diox­ide re­leased from his lands or gen­er­ated from his cat­tle’s ma­nure.

“It’s mo­ti­vat­ing to try to stay ahead (of the pack),” he says af­ter re­ceiv­ing the cheque.

Hand­ing over the wind­fall is Leann Kruger, who’s mak­ing a quick pit stop as she criss-crosses the prov­ince in a green Honda Ridge­line truck dol­ing out dol­lars.

Kruger’s em­ployer, Park­land Agri Ser­vices, is part of a larger group of com­pa­nies known as CROP — Car­bon Re­duc­tion Off­set Projects — that are round­ing up farm­ers like Appleyard across Al­berta and help­ing them gen­er­ate cash in a way never imag­ined only a few years ago.

“How easy is it to give out money?” Kruger says. “It’s re­ward­ing see­ing how this thing is evolv­ing.”

It takes two to four hectares of low-tilled land to gen­er­ate one car­bon credit.

Al­berta’s car­bon trad­ing mar­ket first launched in the sum­mer of 2007. Cred­its ini­tially traded for around $6 to $8 per tonne; now they’re around

$9 to $13. One credit = one tonne of emis­sions re­duc­tions. An av­er­age ve­hi­cle emits five tonnes of emis­sions

per year.

About 100 kilo­me­tres to the north­west, at the CROP offices in Dids­bury, gen­eral man­ager Lynn Ken­nett is hard at work se­cur­ing con­tracts with farm­ers like Appleyard to pro­vide thou­sands of car­bon cred­its for power com­pany Ep­cor and its sub­sidiary, Cap­i­tal Power.

The elec­tric­ity gi­ant, whose coal-fired plants spew vast amounts of car­bon diox­ide into the at­mos­phere, needs off­sets from farm­ers to help meet its green­house gas re­duc­tion tar­gets man­dated by the Al­berta gov­ern­ment.

Al­berta’s car­bon mar­ket is an emerg­ing in­dus­try worth tens of mil­lions of dol­lars, and one set to mul­ti­ply in size as gov­ern­ments around the globe adopt new reg­u­la­tions de­signed to re­duce green­house gases blamed for con­tribut­ing to global warm­ing.

“This isn’t likely go­ing to make a farmer rich,” cau­tions Andy Ridge, one of the Al­berta gov­ern­ment’s point men on car­bon cred­its.

“But some can do very well on this,” he adds. “It’s a cheque that’s go­ing into their pocket. It’s sort of an ‘Ah ha, this is some­thing real now.’ ”

Yet, the car­bon mar­ket has its crit­ics who dis­pute how real the en­vi­ron­men­tal gains ac­tu­ally are.

Even Appleyard ques­tions the true in­tent of the credit mar­ket and its merit.

He doubts the sys­tem was launched sim­ply based on it “be­ing won­der­ful for the en­vi­ron­ment,” but won’t raise too much of a stink if it re­wards some of his for­ward-looking farm­ing prac­tices. “I have an is­sue with it, but I’m also try­ing to be lead­ing edge,” he says.

Appleyard be­lieves the sys­tem, the way it cur­rently ex­ists, is set up to be “a trans­fer of wealth,” sug­gest­ing en­ergy pro­duc­ers are sim­ply shuf­fling rev­enue to farm­ers.

But Al­ber­tans across the prov­ince have a stake in the mar­ket, whether they know it or not.

The ad­di­tional costs to power com­pa­nies to pur­chase the cred­its — and meet their en­vi­ron­men­tal tar­gets — will ul­ti­mately trickle down to con­sumers. That means Al­ber­tans could ul­ti­mately ab­sorb more than $100 mil­lion in en­vi­ron­men­tal levies paid by in­dus­try ev­ery year, both in car­bon cred­its and into a tech­nol­ogy fund.

“Of­ten times the av­er­age con­sumer sees this as be­ing some­thing that is only the con­cern of large emit­ters and big busi­ness, and doesn’t rec­og­nize that even­tu­ally those costs are go­ing to flow back down to their util­ity bill or to the price that they pay at the gas pump,” ex­plains pro­vin­cial En­vi­ron­ment Min­is­ter Rob Ren­ner.

Al­berta’s au­di­tor gen­eral, mean­while, has sev­eral con­cerns with how the credit mar­ket is func­tion­ing, main­tain­ing there’s no guar­an­tee the off­sets be­ing pur­chased re­ally ex­ist.

“It’s an area that’s go­ing to have to be re­solved,” Fred Dunn told re­porters fol­low­ing the release of a re­port ear­lier this month.

“How do you know it’s valid?”

Al­berta cur­rently has about two dozen ac­tiv­i­ties that qual­ify for car­bon cred­its.

They in­clude ev­ery­thing from farm­ers till­ing their fields fewer times to se­quester car­bon, mu­nic­i­pal garbage dumps cut­ting their meth­ane gases, to large feed­lots re­duc­ing the amount of cat­tle ma­nure and the emis­sions that go with it.

Com­pli­cated for­mu­las, based on crop sci­ence and other re­search, de­ter­mine the amount of green­house gases be­ing cap­tured or re­duced. In­de­pen­dent ver­i­fiers, in­clud­ing en­gi­neer­ing and ac­count­ing firms, en­sure the re­duc­tions are mea­sur­able and prop­erly recorded. The gov­ern­ment has the op­tion of con­duct­ing its own fol­lowup au­dit.

Aside from the cash gen­er­ated by his crops, Ap­ple- yard is looking to dou­ble up and be­come one of the first to also cash in on the gov­ern­ment’s credit pro­grams for cat­tle.

An­other six-fig­ure cheque could soon be com­ing.

In a sense, he’s now be­ing re­warded for prac­tices that are hardly new to him. He’s been ex­per­i­ment­ing for seven years with re­ducedtil­lage tech­niques, while also try­ing to cut meth­ane emis­sions from his live­stock busi­ness.

“We were very for­tu­nate,” he says. “The pro­gram fell into us.”

Al­berta’s car­bon credit mar­ket sprung to life in July 2007 — the first of its kind in North Amer­ica — but there are no flashy stock ex­changes or trad­ing floors to buy and sell the cred­its.

Trans­ac­tions, for now, are ex­e­cuted pri­vately be­tween credit pro­duc­ers (such as farm­ers or mu­nic­i­pal­i­ties), the bro­kers who bun­dle the cred­its, and pol­lut­ing com­pa­nies that need to buy them.

Many farm­ers, the lifeblood of the pro­gram, don’t even know it ex­ists.

The car­bon mar­ket is an off­shoot of the Al­berta gov­ern­ment’s much-touted green­house gas reg­u­la­tions for the prov­ince’s roughly 100 large in­dus­trial emit­ters.

New rules re­quired th­ese firms — from oil­sands op­er­a­tions to coal-fired power plants — to re­duce their emis­sions in­ten­sity (amount of car­bon pro­duced per unit of en­ergy) by 12 per cent by the end of 2007, and hit that same tar­get in sub­se­quent years.

Com­pa­nies that can’t meet the reg­u­la­tions have three op­tions:

Pur­chase cred­its from fa­cil­i­ties that have cut their emis­sions be­yond the tar­get;

Pay $15 per tonne of emis­sions over the limit into a pro­vin­cial tech­nol­ogy fund; or Pur­chase car­bon off­sets. “There was noth­ing out there be­fore. We had to cre­ate this bridge be­low us,” ex­plains Ridge with Al­berta En­vi­ron­ment.

The gov­ern­ment’s tech­nol­ogy fund and its $15-per­tonne emis­sions levy ef­fec­tively act as the price ceil­ing on what com­pa­nies must pay if they emit be­yond their tar­gets.

In turn, car­bon cred­its bought and sold in Al­berta are priced from about $9 to $13 each per tonne.

Farm­ers jump­ing into the mar­ket have the added in­cen­tive of be­ing able to claim cred­its retroac­tively to 2002 if their op­er­a­tions fit the pro­vin­cial rules, mean­ing seven years worth of hot air cred­its can be cashed in one pay­day.

Last year, there were 28 reg­is­tered off­set projects in Al­berta, to­talling 3.5 mil­lion tonnes of car­bon diox­ide re­duc­tions — up from the seven projects in 2007, ac­cord­ing to Al­berta En­vi­ron­ment.

The prov­ince be­lieves the credit mar­ket paid back $11 mil­lion to the agri­cul­ture sec­tor in 2008.

So far in 2009, there are about 35 projects reg­is­tered worth about four mil­lion tonnes of off­sets.

“The first year, we did not see a large par­tic­i­pa­tion in the mar­ket,” notes Dave LaBarre with Blue Source Canada, a car­bon bro­ker that reg­is­tered about a third of all off­sets in 2008.

“This year, we have a sig­nif­i­cant num­ber of new play­ers in the mar­ket­place.”

Car­bon cred­its are be­com­ing more at­trac­tive to bud­get-wary emit­ters that need to max­i­mize prof­its and also meet their green­house-gas tar­gets.

Take the case of elec­tric­ity com­pany Cap­i­tal Power of Ed­mon­ton, which will pay about $6 mil­lion this year for off­sets.

The com­pany re­lied en­tirely on car­bon cred­its in 2008 to off­set its emis­sions, and ex­pects to do the same this year. This trans­lates into about 500,000 tonnes worth of re­duc­tions that must be achieved — at a cost of roughly $11 to $12 per off­set.

Cal­gary’s city-owned util­ity En­max has leaned more heav­ily on pay­ing into the gov­ern­ment’s tech­nol­ogy fund. In 2008, the com­pany put more than $11 mil­lion into the tech fund to cover three-quar­ters of its emis­sions.

Ap­prox­i­mately 25 per cent of its com­pli­ance re­duc­tions came from off­sets, says Chris Joy with En­max En­ergy. This year, the com­pany ex­pects up to 40 per cent of its tar­get could be achieved through car­bon cred­its.

“It re­ally gets com­pa­nies think­ing about how they can re­duce their emis­sions,” Joy says about the cost of com­pli­ance.

Power gi­ant Tran­sAlta, one of Canada’s largest emit­ters, has pur­chased hun­dreds of thou­sands of car­bon cred­its over the last cou­ple of years to meet its en­vi­ron­men­tal obli­ga­tions, cost­ing sev­eral mil­lion dol­lars.

“We’ll need ev­ery tool avail­able to us to help hit the chal­lenges ahead of us,” says Tran­sAlta CEO Steve Sny­der.

Ed­ward Wald­ner is an un­likely par­tic­i­pant in Al­berta’s car­bon mar­ket.

Clad in a straw hat, brown plaid shirt and black wool pants with sus­penders, Wald­ner strolls the farm­yard at the Wild Rose Hut­terite colony west of Vul­can, point­ing to the tow­er­ing grain bins they built from the ground up.

For gen­er­a­tions, the colony has farmed this same land to sus­tain a hum­ble, tra­di­tional way of life.

Fif­teen years ago, the 6,100-hectare op­er­a­tion changed to no-till agri­cul­ture to in­crease its pro­duc­tiv­ity.

Never did they imag­ine they would be able to cash in on cli­mate change.

But the birth of the car­bon mar­ket is now gen­er­at­ing tens of thou­sands of dol­lars of un­ex­pected in­come.

“I didn’t even know that this stuff can hap­pen. It’s just a bonus,” says Wald­ner, 60, who’s headed the colony’s agri­cul­tural op­er­a­tions for two decades.

This sum­mer, the colony re­ceived a cheque for around $70,000 for the nearly 7,500 tonnes of emis­sions re­duc­tions ob­tained by low tillage.

Fu­ture cheques will no doubt be smaller (with the retroac­tive cred­its no longer counted), but still to­tal thou­sands of dol­lars.

“It’s def­i­nitely a good way to go,” he adds. “Now we are ex­pect­ing to get it. We’ll ex­pect that money.”

En­vi­ron­men­tal gains ob­tained by no-till farm­ing are secondary to gen­er­at­ing health­ier re­turns on their wheat, bar­ley and canola crops, he says. The strat­egy re­duces op­er­at­ing costs and im­proves crop yields.

Cash from sell­ing the car­bon cred­its will be dumped back into op­er­a­tions to help pay for mount­ing fer­til­izer costs and the mil­lions of dol­lars of farm equip­ment that, along with dozens of grain bins, en­case the yard.

“Thou­sands don’t get you much any­more,” Wald­ner quips.

Farm­ers, nev­er­the­less, are flock­ing to the car­bon mar­ket to cash in on prac­tices they’ve been ex­per­i­ment­ing with for sev­eral years, which seems to vi­o­late the spirit of the off­set sys­tem, crit­ics charge.

Pro­vin­cial rules dic­tate that car­bon credit pro­duc­ers are only to earn off­sets if they’ve changed their op­er­a­tions in ways that re­duce green­house gas emis­sions be­yond what would have al­ready been achieved.

The en­vi­ron­ment min­is­ter notes farm­ers who’ve been con­duct­ing low-im­pact agri­cul­ture for years shouldn’t be un­fairly pun­ished by not be­ing able to ac­cess cred­its that are sud­denly avail­able to pro­duc­ers who’ve just re­cently turned over a new leaf.

“It’s en­cour­ag­ing a whole lot of new peo­ple to come into it that never would have come into it without hav­ing the fi­nan­cial in­cen­tive in place,” notes Ren­ner.

“The con­se­quence, in­tended or oth­er­wise . . . is we ac­tu­ally are en­hanc­ing the en­vi­ron­ment.”

Nev­er­the­less, Al­ber­tans should not be ac­cu­mu­lat­ing cred­its for main­tain­ing the sta­tus quo, he in­sists.

“If no one changed their prac- tices and got a bonus for do­ing busi­ness as usual, I would be un­happy,” Ren­ner says.

Yet, that seems to be ex­actly what’s hap­pen­ing in many parts of ru­ral Al­berta.

Agri­cul­tural pro­duc­ers such as Wald­ner and the Wild Rose Hut­terite colony are sim­ply con­tin­u­ing on with the same farm­ing prac­tices they’ve grown ac­cus­tomed to over many years.

But Dunn, the prov­ince’s au­di­tor gen­eral, raised con­cerns about tillage cred­its be­ing granted back to 2002, “well be­fore the tim­ing of any ver­i­fi­ca­tion ac­tiv­i­ties” were be­ing con­ducted.

En­vi­ron­men­tal groups, mean­while, are skep­ti­cal about the sys­tem.

The Pem­bina In­sti­tute, an Al­berta-based en­vi­ron­men­tal think-

tank, be­lieves there’s “sig­nif­i­cant loop­holes” with Al­berta’s car­bon trad­ing sys­tem, but that farm­ers aren’t to blame.

Rather, the pro­vin­cial gov­ern­ment is en­abling agri­cul­tural pro­duc­ers to qual­ify for off­sets that aren’t gen­er­at­ing any new emis­sions re­duc­tions, the group ar­gues.

“There are huge risks with the sys­tem,” says Clare De­merse, Pem­bina’s as­so­ciate di­rec­tor on the cli­mate change file. “It’s not that any­body is break­ing the rules, it’s that the rules al­low for this.”

Back near Strathmore, Greg Appleyard has his own ques­tions with be­ing re­warded for prac­tices dat­ing back seven years.

“How long can they keep go­ing back to 2002 be­fore that in­for­ma­tion starts not be­ing ac­cu­rate?” he won­ders.

“What level of sci­ence is good enough?”

Nev­er­the­less, he’s grate­ful for re­ceiv­ing his own cheque, one that’s in the six-digit range.

And he hopes his feed­lot op­er­a­tions will be reg­is­tered for more off­sets.

Re­duc­ing the slaugh­ter age for cat­tle, num­ber of days on feed and al­ter­ing their “fin­ish­ing di­ets” all qual­ify for sep­a­rate gov­ern­ment cred­its that could gen­er­ate any­where from $10 to $25 (a cou­ple of cred­its) a head in his 25,000-an­i­mal op­er­a­tion.

Add it up and it could mean po­ten­tially $500,000 or more from his feed­lot — on top of the pay­day he’s al­ready en­joy­ing.

“It makes you think you’re on the right track,” he says. “Grate­ful for the cheque.”

 ?? Leah Hen­nel, Cal­gary Her­ald ?? Al­berta’s fledg­ling car­bon-trad­ing mar­ket has been fi­nan­cially re­ward­ing for some of the prov­ince’s farm­ers, though ques­tions are mount­ing about the pro­gram’s value in fight­ing cli­mate change and the long-term ef­fects on con­sumers.
Leah Hen­nel, Cal­gary Her­ald Al­berta’s fledg­ling car­bon-trad­ing mar­ket has been fi­nan­cially re­ward­ing for some of the prov­ince’s farm­ers, though ques­tions are mount­ing about the pro­gram’s value in fight­ing cli­mate change and the long-term ef­fects on con­sumers.
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 ?? Leah Hen­nel, Cal­gary Her­ald ?? Ed­ward Wald­ner from the Wild Rose Hut­terite colony west of Vul­can says the 6,100-hectare farm­ing op­er­a­tion he over­sees is earn­ing tens of thou­sands of dol­lars in un­ex­pected in­come through the Al­berta car­bon trad­ing mar­ket for con­tin­u­ing the no-till farm­ing prac­tices they’ve been us­ing for over a decade.
Leah Hen­nel, Cal­gary Her­ald Ed­ward Wald­ner from the Wild Rose Hut­terite colony west of Vul­can says the 6,100-hectare farm­ing op­er­a­tion he over­sees is earn­ing tens of thou­sands of dol­lars in un­ex­pected in­come through the Al­berta car­bon trad­ing mar­ket for con­tin­u­ing the no-till farm­ing prac­tices they’ve been us­ing for over a decade.
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 ??  ?? FACTS
FACTS
 ?? Pho­tos, Leah Hen­nel, Cal­gary Her­ald ?? “I didn’t even know that this stuff can hap­pen. It’s just a bonus,” Ed­ward Wald­ner of the Wild Rose Hut­terite colony says of the car­bon trad­ing cash they re­ceive.
Pho­tos, Leah Hen­nel, Cal­gary Her­ald “I didn’t even know that this stuff can hap­pen. It’s just a bonus,” Ed­ward Wald­ner of the Wild Rose Hut­terite colony says of the car­bon trad­ing cash they re­ceive.
 ??  ?? Lynn Ken­nett, gen­eral man­ager of Car­bon Re­duc­tion Off­set Projects Ltd. in Dids­bury, has been sign­ing up farm­ers on car­bon credit con­tracts for power com­pany Ep­cor.
Lynn Ken­nett, gen­eral man­ager of Car­bon Re­duc­tion Off­set Projects Ltd. in Dids­bury, has been sign­ing up farm­ers on car­bon credit con­tracts for power com­pany Ep­cor.
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 ?? Leah Hen­nel, Cal­gary Her­ald ?? Leann Kruger, en­vi­ron­men­tal lead from Park­land Agri Ser­vices, hands a car­bon credit cheque to Greg Appleyard at his farm, which boasts 8,100 hectares and 25,000 head of cat­tle.
Leah Hen­nel, Cal­gary Her­ald Leann Kruger, en­vi­ron­men­tal lead from Park­land Agri Ser­vices, hands a car­bon credit cheque to Greg Appleyard at his farm, which boasts 8,100 hectares and 25,000 head of cat­tle.

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