1. Incentivising the management of soil carbon
Alan Matthews

2. Outline
• General consideration in incentivising soil carbon
sequestration
• Climate policy instruments
• Implications of LULUCF decisions
• Agricultural policy instruments
• Does the CAP 2013 reform present new opportunities?
• The carbon offset market – another way forward?

3. The issue
• Continuous cultivation has reduced soil carbon
content, sometimes to dangerously low levels
• The opportunity to restore the carbon content of
soils is an important mitigation opportunity as well
as desirable for many other reasons
• There is a very large technical potential for soil C
sequestration
• Sequestration is equally important to emission
reductions in addressing climate change

4. How much of the technical potential for
abatement is it economic to realise?
Source: MacLeod et al, 2010

5. A UK example of a MAC –
marginal abatement cost curve
Source: MacLeod et al, 2010

6. Additionality has two meanings
• Emissions reductions or removals claimed as due to
mitigation activities under the KP need to be ‘additional’.
• In the LULUCF sector, this means that only emissions and
removals due to human activity should be reported,
excluding any contribution due to natural processes.
• Making this distinction can be highly problematic

7. Additionality in an economic perspective
• Carbon sequestration is considered non-
additional if the farmer receives credit for an
emission reduction that has already occurred or
would have occurred anyway.
• This requirement calls for reductions to be
computed as the difference between actual
emissions and a baseline scenario intended to
capture emissions under business as usual.
• However, predicting an alternative and
unobserved emissions trajectory into the future is
difficult, making the baseline estimates uncertain.

8. Permanence and saturation
• Soil C sequestration is finite and easily reversible
• Three ways to tackle this
• Comprehensive soil C accounts at regular intervals, farmers paid
for sequestration but must pay for emissions
• Discounted payment
• Carbon rental payments (but leaves uncapped soil C sources)

9. Leakage
• Leakage occurs when the sequestration actions cause
responses that also have GHG consequences
• Less production due to lower yields or taking land out of production
• Sequestering C may increase emissions of other gases
• Scientific evidence of effects of conservation tillage on yields
mixed, varies by soil type
• Possible to address using discount factors

10. Changes in soil carbon must be measurable
and verifiable
• Measurement costs
• High expressed in terms of cost per tonne CO2 potentially
sequestered (see Ancev, 2011 for estimates excluding monitoring
and verification costs)
• Verifiability
• What standard is acceptable?

11. Commission proposed Energy and Climate
Policy Framework to 2030
• Overall reduction target of 40% in 2030 compared to 1990
• Divided between ETS sectors (43% reduction) and non-ETS
sectors (30% reduction, both compared to 2005)
• Effort-sharing between MS in non-ETS sectors allocated using
distributional criteria
• Separate renewable energy target of 27% but only for EU
as a whole

12. Commission proposed Energy and Climate
Policy Framework to 2030
• Treatment of agriculture and land use
• Currently, non-CO2 emissions counted under ESD in
non-ETS sector
• LULUCF emissions and removals excluded from EU
targets but included in EU’s international commitments
• “Further analysis will be undertaken with the aim
of assessing the mitigation potential and most
appropriate policy approach which could, for
example, use a future Effort Sharing Decision
governing the non-ETS GHG emissions or an
explicit separate pillar, or a combination of both.”

13. LULUCF accounting rules
• New rules entered into force 8 July 2013
• Builds on the decision by UNFCCC parties in December 2011
to revise accounting rules for GHG emissions and removals
from soils and forests
• Phases in mandatory accounting for grassland management
and cropland management at the level of Member States.
• Accounting for the draining and rewetting of wetlands will
remain voluntary, as in the international context.
• Requires Member States to report on their actions to increase
removals and decrease emissions of GHG from activities
related to forestry and agriculture.
• LULUCF targets will only be set once the accounting rules
have been validated.

14. Agricultural policy measures
• Cross-compliance
• The new green payment in Pillar 1
• Rural development measures in Pillar 2
• Other measures (Nitrates Directive, Water Framework
Directive, Habitats Directive, Birds Directive etc)
What changes/opportunities
introduced by CAP 2013?

15. Policy options –
protection vs. enhancement
• “The EU Climsoil project (Schils et al., 2008) identified
that the most effective option to manage soil carbon in
favour of climate change mitigation is to preserve existing
stocks in soils rather than attempt additional carbon
sequestration. This holds true especially for the relatively
large stocks in peat and specific mineral soils with a high
content of organic matter, e.g. permanent grassland.”
- Alterra et al., 2011

16. Protection of permanent grassland
• Article 45 DP Regulation
• Replaces GAEC 7 Protection of wetland and
carbon rich soils including a ban of first ploughing
• Member States shall designate permanent grasslands which are
environmentally sensitive in areas covered by the Habitats or Birds
Directives, including in peat and wetlands situated in these areas, and
which need strict protection in order to meet the objectives of those
Directives.
• Member States may, in order to ensure the protection of
environmentally valuable permanent grasslands, decide to designate
further sensitive areas situated outside areas covered by these
Directives, including permanent grasslands on carbon-rich soils.
Farmers shall not convert or plough permanent grassland
situated in these areas designated by Member States.

17. Protection of permanent grassland
• Article 93, HZ Regulation
• Under cross-compliance rules in 2015 and 2016,
Member States must ensure that land which was
under permanent pasture in farmers’ area aid
applications in 2003 (2004 for EU-10, 2007 for
EU-2 and 2013 for Croatia) is maintained under
permanent pasture within defined limits, with
obligation on individual farmers to reconvert
areas into permanent pasture if ratio is
decreasing

18. Protection of permanent grassland
• Commission delegated act on permanent pasture
controls under cross-compliance C(2014) 1459
• Where ratio of PP to agricultural area has
decreased in 2014, MS can require authorisation
for conversion of permanent pasture to arable
land
• If decrease > 5%, authorisation is mandatory
• If decrease > 5%, farmers applying for payments
in 2015 will be required to reconvert land to
permanent pasture

19. GAEC for soils
• Preventing soil erosion
• Maintaining soil organic matter
• Maintaining a good soil structure
• Continue unchanged in 2014 compared to 2009

20. GAEC standards relevant to soil carbon
2014
version
2009
version

21. GAEC standard introduced in Ireland, 2009
• “Under GAEC farmers must "maintain soil organic
matter levels through appropriate practices". If a
parcel has been under tillage cropping continuously
for 6 years or more, you must ensure through soil
sampling that organic matter levels are maintained
through the use of appropriate farming practices.
Where organic matter levels are depleted (< 3.4%
organic matter) it may be necessary, depending on
soil type, to adopt farming practices that will restore
organic matter levels in the soil. Compliance with this
requirement will be checked in the course of cross
compliance inspections”.

22. Pillar 1 Greening measures
• 30% of farmer’s single farm payment paid as a green
payment, conditional on following:
• (a) crop diversification;
• (b) maintaining existing permanent grassland; and
• (c) having ecological focus area on the agricultural area
• OR
• Equivalent practices
• (a) Included in an AEM under Pillar 2
• (b) national/regional environmental certification scheme
• Certification scheme must cover all 3 greening practices
and have equivalent or higher level of benefit
• Up to member state to decide whether to offer this option

23. Greening measures –
Protection of permanent grassland
• Article 45 DP Regulation
• Updating of baseline
• Member States shall ensure that the ratio of permanent
grassland to the total agricultural area does not decrease
by more than 5% compared to a reference ratio to be
established by Member States in 2015.
• If the absolute level of permanent grassland is
maintained, this obligation is deemed fulfilled.
• The obligation can apply at national, regional or the
appropriate sub-regional level or even at holding level if a
Member States wishes. Member States shall notify the
Commission of any such decision by 1 August 2014.

24. Using Pillar 2 schemes to pay farmers for
carbon sequestration
• The agri-environment-climate measure (Article 28)
compulsory for Member States
• (other measures include support for organic farming,
afforestation, renewable energy)
• This measure shall aim to preserve and promote the
necessary changes to agricultural practices that
make a positive contribution to the environment and
climate.
• Overall Pillar 2 budget 2014-2020 reduced compared
to 2007-2013 by around 13% real terms
• MS have options to transfer funds between Pillars
• Minimum 20% spend on Axis 2 (environment and land
management) replaced by 30% minimum spend on climate and
agri-environment

26. Using Pillar 2 schemes to pay farmers for
carbon sequestration
• Normally, commitments for 5-7 years but this period can
be extended in RDPs
• Payments can only cover commitments going beyond
cross-compliance standards
• Extent to which Member States will use opportunities
unknown until Rural Development Programmes are
approved and published by Commission

27. Policy efficiency
• Two ways in which farmer could be rewarded for soil
C sequestration
• Per ha payment in return for specific farm practice
• Per t C sequestered
• Former often preferred by authorities because of
lower monitoring and transactions costs, and by
farmers because of greater certainty
• But because of great spatial variability across farms,
the cost per tonne C sequestered can be multiples
under per ha programmes
• Suggesting high payoffs to implementing contracts
that take account of spatial variability

28. The dilemma in treating the ‘prodigal son’!
• We are willing to pay for soil carbon because it makes
sense in climate policy terms
• But those who would get the most payment are those who
have most abused their soils in the past
• Should farmers who already adopted the improved
practices (presumably because it was in their economic
interest) receive payment?

29. Paying for soil carbon sequestration through
carbon offsets
• Under a cap-and-trade emissions trading system,
offsets are a reduction in GHG
emissions/increase in sequestration realised by
an unregulated party that can be used to
counterbalance emissions from a regulated party
• Offsets currently allowed in ETS under Joint
Implementation/Clean Development Mechanisms
• If LULUCF is not covered under ETS or ESD,
could be linked to ETS by allowing LULUCF
offsets – compliance offsets
• Note also possibility for voluntary offset market

30. Arguments for and against
Pro
• Would encourage ‘learning by doing’ in developing appropriate
methodologies for MRV for LULUCF activities
• Politically popular as would benefit both ETS sectors and
farmers
Con
• Need to avoid ‘double-counting’ when reporting on international
commitments
• Allowing farmers to enrol in C sequestration programmes
voluntarily is almost certain to enrol those to intend to increase
sinks anyway, while producing no incentive to control those
who intend to become a large source

31. Examples of agricultural offset schemes
• Australian Carbon Farming Initiative
• Alberta Carbon Farming Offsets
• United States Chicago Climate Exchange, Climate Action
Reserve

32. Conclusions
• Commission proceeding cautiously on LULUCF because
of MRV issues
• CAP 2013 rules changes provide optional opportunities
for Member States to protect/encourage soil C storage
• GAEC standards for soil depend on continued basic
payment under Pillar 1
• Both Pillar 2 (payments for environmental services)
schemes and carbon offset markets provide opportunities
for learning by doing
• Despite large doubts about additionality, they should be
encouraged