Building bridges between climate and agriculture in Bangkok

IATP's Jim Harkness and Anne Laure Constantin are in Bangkok at the global climate talks. Below, Anne Laure blogs on what is at stake for agriculture.

Bangkok is humid (as it should be at this time), and much of South Asia is under heavy rain, with disastrous floods in South India and The Philippines hitting international headlines. Advocates for climate action are rushing around the UN Conference Center in Bangkok pointing to the floods as yet another example of the perils of climate change. The talks have been on for about 10 days and will end this week.

Further away from the conference center (a painful 40-minute ride in Bangkok’s busy traffic), the Asian Farmers Association is holding a series of meetings on agriculture and climate change, with some looking particularly at the role of women farmers. AFA also took an active part in the meeting we organized on Sunday with farmers' groups and climate activists.

And so, slowly, the new and growing call around international circles for the need to include agriculture in a new climate treaty is trickling down to those who really matter: farmers who grow most of the world’s food! As things move forward swiftly inside the climate negotiations, it is urgent that the voices of small farmers and Indigenous peoples be heard by negotiators working on agriculture. This is what we argue in our Benchmarks for Copenhagen and we will keep working to make it happen!

» Read the full post

Why Agriculture and the Climate Bill don't Mix

It seems everyone is in a tizzy over agriculture and the climate change bill. Environmentalists are mad about concessions given to farm-state legislators to get the bill—known as "Waxman-Markey," after its two principal sponsors—through the House last July. The industrial farm lobby is mad about the climate bill generally, worried it will raise energy costs. And farmers are unsure how, if at all, they will benefit from the offset credits they could receive, and what they would need to do to get them.

It is high time we took steps as a nation to cut greenhouse gas emissions. Tackling climate change is perhaps one of the most important and difficult challenges we have faced as a society; but including agriculture in the Waxman-Markey bill is bad for farmers, eaters and the planet.

For the bulk of human history, we’ve grown food, fiber and energy without reconfiguring the atmosphere, but the industrial revolution made the bulk of agriculture highly dependent on fossil fuels. Today in the U.S., agriculture accounts for about 13 percent of our nation’s total greenhouse gas emissions, and it also contributes heavily to soil erosion, water contamination and the loss of biodiversity—but it doesn’t have to be this way.

Waxman-Markey has recognized agriculture’s enormous potential to not only mitigate the ills it has caused, but to also act as a carbon sink. This is the basis for the bill’s carbon offsets program for agriculture, where farmers would receive government credits for doing things like tilling their soil less and planting trees on cropland. Polluting industries and investors could buy these credits, in theory helping fund these on-farm carbon-sequestering activities.

This program is troubling for several reasons. Technically, carbon offset projects are notoriously difficult to measure and verify—making the incentive for change subject to the whims of a speculative market dominated by Wall Street banks. And making it awfully difficult to ensure that offsets will be a long-term, reliable solution to climate change. Falling carbon offset prices would be poor incentives for farmers to switch to climate-friendly agriculture practices. It is hard to envision this having much of a positive impact—for farmers or the planet.

Agriculture is among our greatest achievements and one of our most precious resources. It gives us season after season of food and fiber. Done right, it builds healthy soils, helps purify our drinking water, provides wildlife habitat, and yes, even helps mitigate climate change. With support, agriculture creates livelihoods for farmers, helps preserve the culture and knowledge of food production, and promotes an ethic of land stewardship and preservation. And let’s be clear, good farming has been the basis for a sustainable planet for centuries. Agriculture should in no way be given a free pass when it comes to climate change mitigation, but it is not the source of the climate change problem.

Making Waxman-Markey a primary vehicle for debating agricultural sustainability schemes distracts from making real progress toward more climate-friendly, sustainable agriculture, and takes away much needed resources.

We should not aim to define agriculture’s role in our society through a climate bill. Instead, we should begin a separate, equally urgent process to decide how best to promote agricultural systems that provide us with the kind of farms, rivers, livelihoods, and climate we value as a society. The USDA’s Conservation Stewardship Program, which pays farmers for sustainable practices on working, productive lands, provides one good place to start such conversations. Expanding such programs should be a clear priority for policymakers and the public, but ultimately, agriculture policy will have to reach much further, to a vision and scale that match the historic challenges we face.

Let’s push forward with strong climate policies, but let’s not use agriculture to circumvent the source of the problem. Our food system is too precious. We already know that agriculture can benefit us all; let’s find a way to make certain that it does.

» Read the full post

A New Energy Utility Takes on Climate Change

As Congress debates a U.S. climate bill this fall, and governments around the world are focused on global climate negotiations in Copenhagen in December, a new community-based approach to addressing climate change is taking hold.

The Sustainable Energy Utility, or SEU, is turning the traditional role of an energy utility on its head in a growing number of states, cities and communities.

In a new article published in Delaware Lawyer, Dr. John Byrne of the Center for Energy and Environmental Policy and IATP's Dr. Cecilia Martinez write, "The energy utility of the 20th century was invented to rapidly and continuously increase the energy supply. . .The 21st-century energy utility must have a different focus: to help every citizen and every business conserve energy and, when energy is needed, to utilize the energy gifts of our planet—sunlight, vegetation, the winds and the constant temperature of the earth's mantle just three meters below the surface."

But aggregating government, private and philanthropic resources, the SEU differs from traditional utilities by focusing on: 1) a transition to carbon-free energy sources; 2) a reorientation from energy as commodity to energy as a service; 3) the transition to distributed energy infrastructure; and 4) the direct involvement of energy users in energy decisions.

The SEU directly tackles two of the most difficult challenges in shifting our energy system: high upfront capital costs to obtain long-term benefits in efficiency and renewable energy; and the shock of significant energy price increases. Acting as a nonprofit, the SEU coordinates innovative approaches like third-party financing, tax-exempt bonds, revolving funds, federal and state incentives and grants, and funding from other public and philanthropic resources to invest in sustainable energy infrastructure with long-term savings that are shared by the community.

The SEU concept has been catching on and it's remarkably scaleable. The April 2009 issue of the Bulletin of Science, Technology and Society reports on applications of the SEU in Europe, Africa, Latin America and Asia. In the U.S., Delaware has become the first state in the country to create a state-wide SEU.

In Minnesota, IATP is working with the small rural town of Milan in western Minnesota, and a community organization on the west side of St. Paul, to explore the SEU model.

The Center for Earth, Energy and Democracy at IATP is working with West Side Citizens Organization to put an SEU into action in their neighborhood. The west side of St. Paul is a densely populated community of 16,000 in a former industrial zone, with a large percentage of low-income households and people of color. This SEU will focus on energy efficiency and on-site renewable projects.

In Milan, IATP is working with community leaders to develop the first rural-based SEU in the Midwest. Milan, a town of about 350 people, with an average annual household income of about $30,000, will be a model for rural communities in promoting energy affordability, community focused sustainability and attracting energy service businesses to their town.

New policies at the national and international level will set the framework for our collective efforts to stop climate change, but it will take transformative models like the SEU, working on the ground, in communities around the world, to get us there. You can find out more at IATP's SEU page.

» Read the full post

Krugman on Carbon Derivatives: A Rebuttal

Steve Suppan, Senior Policy Analyst with IATP, has responded to New York Times columnist Paul Krugman regarding his recent blog post "Is the threat of speculation a reason to shun cap and trade?" (July 21, 2009) about the American Clean Energy and Security Act of 2009.

The entire commentary is reproduced below or available to view or download as a PDF here.

Krugman on Carbon Derivatives: A Rebuttal
By Steve Suppan

In his eagerness to support climate and energy legislation, Paul Krugman oversimplifies and thereby distorts the opposition to the carbon derivatives provisions in the American Clean Energy and Security Act of 2009 (ACES) as “[…] basically ‘Eek! Markets! Wall Street! Speculation! Bad!’” (“Is the threat of speculation a reason to shun cap and trade?” July 21, 2009). Granted it is only a blog post, and not yet a topic of his very influential and widely syndicated New York Times column; yet given his influence, even his blog merits a rebuttal.

Krugman would have us believe that trading carbon emissions permit derivatives is just like trading a wheat futures contract. Not so. Wheat futures contracts allow market participants to manage short-term (usually 90 days) price volatility, including “bets” that hope to drive down the price of wheat. How will a statutory purpose of ACES—“to reduce green house gas pollution”—be fulfilled if speculators are allowed to drive down the price of carbon below even the price of the emission permits Congress gives away to industry in ACES? The data reporting requirements for ACES indicate that “short only” bets to decrease carbon prices will be allowed. 

Following what European traders have done, Wall Street will slice, dice and package the claimed dollar per ton value of carbon-reducing claims made in projects to offset increases in carbon emissions elsewhere. Offset-based carbon derivatives contracts could proliferate on nothing more than the expectation of regulatory approval of projects claiming to offset carbon emissions. As Friends of the Earth’s Michelle Chan testified to the House Ways and Means Committee in March, profits could be taken on offset-based derivatives far in advance of any proof that an offset project has resulted in verifiable greenhouse gas reductions. 

Wall Street forecasts at least a $2 trillion market in carbon derivatives within five years. The current estimated value of all agricultural and non-agricultural commodity derivatives traded under Commodity Futures Trading Commission authority is $4–5 trillion. If the forecast is accurate, carbon derivatives could become a major component of commodity index fund formulas. The ACES trader data reporting requirements anticipate that carbon derivatives will be bundled into commodity index funds. Depending on how traders formulate the mix of commodities in the fund formula, it is likely that carbon emissions could become the dominant “commodity” in some fund formulas, displacing oil. Agricultural commodity prices, and to a lesser extent global food security, could be vulnerable to a swing in carbon derivatives prices, as carbon dominant index funds roll over to take profits.

Krugman still believes that speculation was not a major driver of commodity price volatility in 2008; and hence believes that excessive speculation can be easily regulated for carbon derivatives. He bases the former belief on a blog by Scott Irwin at the University of Illinois at Urbana-Champaign, who dismisses a just-published U.S. Senate report on wheat speculation because it incorporates the views of market participants—and benefits too little from Irwin’s own work and that of other U.S. agricultural economists. However, as Christopher Gilbert at the University of Trieste has shown on the basis of CFTC data, index funds controlled about a third of all corn futures contracts from 2006–2008. (The disparity in 2008 futures contracts held by index funds vs. commodity traders subject to CFTC contract holding limits is even more severe; e.g., 1.5 billion bushels in Chicago Board of Trade March 2008 corn contracts held by the Goldman Sachs and Morgan Stanley managed funds vs. 11 million bushels held by users and traders of that commodity.) After demonstrating how the funds could swing the price of corn, Gilbert concludes that the “fund formula is the fundamental.” 

In February, the U.S. House of Representatives Committee on Agriculture, convinced that excessive speculation was a major factor in commodity price volatility in 2008, passed a bill to prevent the trading practices that lead to excessive speculation. However, Wall Street has set aside hundreds of millions of dollars to finance a sotto voce lobbying campaign against this and similar bills in the Senate. As a result of this campaign, a future House and Senate compromise to reform the Commodity Exchange Act (CEA) may result  in some of the financial service industry practices that have triggered the destruction of much of the global economy. 

As Satyajit Das wrote in the Financial Times (“How to design derivatives that dazzle and obfuscate,” July 8), “Financial products must be opaque and priced inefficiently to produce excessive profits.” Although Das writes about financial derivatives, he could just as well be writing about commodity derivatives, which provided the original model for financial derivatives. If the CEA, an underlying legislative authority for ACES, allows the opacity for over-the-counter derivatives that have contributed so much to the present depredations, we could soon live in the worst of all possible carbon-derived worlds. Huge institutional investors, such as pension funds, could be plowing money into carbon derivative offsets, while ACES enriches Wall Street but fails to reduce carbon emissions.

Traditional speculators provide liquidity needed to clear trades in commodity futures markets; but their role must be tightly regulated in order that excessive liquidity not result in the extreme price volatility that has disrupted agricultural and non-agricultural commodity markets.  This need for tight regulation is all the greater when it concerns the reduction of green houses gasses. The purpose of ACES should not be to “get carbon prices right” but to achieve the long-term reduction of carbon emissions of which the legion of benefits is ultimately beyond pricing. The carbon derivatives subtitles of ACES do not provide the statutory basis to achieve that purpose. We would suggest that instead of caricaturing the  opposition to carbon derivatives in ACES, Krugman dedicate more time to analyzing the bill itself.

Steve Suppan is a Senior Policy Analyst at the Institute for Agriculture and Trade Policy.

» Read the full post