Environmental markets could sell farmers on conservation

Farmers are used to playing the commodity markets when they sell their crop. But a different kind of market could be emerging. Federal regulators are advancing the idea of environmental markets to get more farmers practicing conservation.

The idea is that farmers could generate credits by farming in ways that store carbon, filter out water pollution, or preserve wildlife habitat. Those credits could be bought, sold, and traded by companies that need to balance out their own emissions or pollution.

A handful of these are already up and running. For example, in Oregon farmers are earning money by planting trees along a salmon stream to keep the water cool. In California, power plants are under orders to cut carbon emissions. They’re trading offsets with rice farmers who have changed their cropping practices to cut methane emissions. Robert Parkhurst, who works on greenhouse gas mitigation with the Environmental Defense Fund, has helped develop that market.

“Rice growers are implementing practices that reduce methane emissions, at the same time providing very valuable habitat for water birds,” said Parkhurst. “So there's more than one benefit. There's the carbon and the habitat benefit at the same time.”

That same idea could come to corn farmers in the Midwest. Federal regulators, non-profits, environmental groups, and state agencies, are all studying whether it makes sense to create more markets for conservation.

Nitrate run-off into our water sources is a dangerous and costly problem. How does it happen? Where does it happen? And how can we prevent it or clean it up? Harvest Public Media's Bridgit Bowden explains.

There are a couple reasons this market-based approach is gaining interest. The first is that it can lower the cost of cutting pollution. Let’s say you want to cut nitrate runoff in rivers. You can build an expensive filtering facility onto a wastewater treatment plant, or farmers can put in wetlands.

“If you can get the ratepayers for the wastewater treatment plants to pay agriculture for the reductions it makes it, in principle, easier to do,” said Jim Shortle, an economist at Penn State University who studies environmental incentives for farmers.

The second reason Shortle says markets can make sense is because, particularly on issues like water pollution, the EPA can’t do much more through existing regulations.

“And the reason why it can’t is that agriculture is often the leading source of remaining pollution,” Shortle said.

A facility like a wastewater plant has to follow federal permits that limit pollution. It’s called a “point source” of pollution. Aside from large livestock operations, farms are “non-point” sources. They are unregulated under the Clean Water Act, even though they can account for large pollution loads.

In Iowa, for instance, 92 percent of nitrogen pollution and 80 percent of phosphorous come from non-point sources like agriculture. Downstream they can make drinking water unsafe and add to the dead zone in the Gulf of Mexico. Many federal regulators, like U.S. Department of Agriculture Deputy Under-Secretary for Natural Resources and Environment, Ann Mills, see environmental markets as a way to get more farmers engaged on that issue.

“We cannot regulate our way out of our water quality challenges in this country,” Mills said. “We've got to get a lot more people involved, a lot more people. We have to scale this significantly.”

USDA recently put $10 million behind grants to establish environmental markets. That includes $700 thousand to build a market in Iowa to reduce nitrogen runoff.

Scott Edwards of the environmental group, Food and Water Watch, says enrolling farmers in environmental markets avoids what he sees as the real issue.

“We don't have the political will to force them to do what other industries do, which is mandatory monitoring and discharge permits,” Edwards said.

Edwards says USDA programs like the Environmental Quality Incentives Program already subsidize conservation. These markets would just add on. Shortle, the Penn State economist, says market incentives could be at odds with programs like crop insurance or the ethanol mandate that encourage intensive crop production. They encourage planting a nitrogen heavy crop – corn.

But putting farms under the same regulatory scheme as utilities and wastewater plants would mean monitoring and permitting hundreds of thousands of farms. “So you just have to recognize that an agency looking at regulating all of them would be looking at an enormous cost,” Shortle said.

Congress won’t foot that bill, so these markets are a potential alternative. And that’s not to say farmers are against conservation.

On Lucas Lucky’s farm near Columbus, Neb., leaves fall in green and yellow clumps in a field of soybeans. His 80-acre field, like others across the Midwest, is shaped by markets. There are 20 acres of soybeans and 60 acres of corn for the grain markets. But there’s a corner where he cuts hay to feed cattle for the beef market.

But perhaps there are untapped markets for storing carbon in the soil by not tilling it up, to curb water pollution with cover crops, even to preserve habitat like the farm ponds on the other side of the field.

“We see ducks and geese down there pretty much all year,” Lucky said.

That could be worth something on an environmental market. Lucky tried cover crops, but they weren’t worth the extra work. However that could be different if there was a market for it.

“From a cost standpoint, we have a different soil. It might not work the best,” Lucky said. “But like you said, if (you could earn) twenty bucks an acre to do it this way, the difference might be offset enough that that practice could work on this farm now.”

Farmers like Lucky have their eye on the bottom line and attaching a value to conservation, could change how things add up.

Harvest Public Media is a reporting collaboration focused on issues of food, fuel and field. Harvest covers these agriculture-related topics through an expanding network of reporters and partner stations throughout the Midwest.