No one should hold their breath, but climate change legislation is beginning to move in the U.S. Senate. The U.S. House of Representatives passed a comprehensive climate change bill last July, but it has been “resting” in the Senate, while the Senate grapples with health care reform. President Obama’s hope for a bill to be passed prior to the international conference on climate change in Stockholm this December has been dashed. But the end of the health care debate is potentially in sight, and on September 30 Senators John Kerry and Barbara Boxer introduced S. 1733, their version of comprehensive climate change legislation. Climate change legislation is beginning to move.

The Kerry-Boxer bill has a long way to go before it conceivably is passed by the Senate and adopted into law, but because like its House counterpart, it is huge, it is not too early to start looking at how it is structured. One potentially gratifying provision for the forest and agriculture industries is Section 155, which proposes to create a “supplemental agriculture and forestry greenhouse gas reduction and renewable energy program.”

Deforestation is one of the largest world-wide sources of carbon emissions, as carbon that has been stored, sometimes for centuries, in trees is released into the atmosphere. Conversely, keeping current forests growing and increasing the area in forest land, is one of the ways to most easily and effectively sequester carbon. Keeping forests growing in environmentally sensitive areas can have multiple other environmental benefits, including preservation of wildlife habitat, protection of water quality, and provision of recreational opportunities for the public. Similarly agricultural practices can either increase the carbon sequestered in the soil by agricultural crops, or increase the release of carbon into the atmosphere. A carbon cap-and-trade program will include a program for purchase of “off-sets” – carbon credits earned by paying someone else to do something that increases carbon sequestration or prevents release of carbon. It is certain that one form of off-set will come from programs that reforest areas that have been deforested, or that prevent future de-forestation.

A fundamental precept of carbon off-sets, however, is “additionality.” Does the program receiving credit as an off-set actually cause something to happen that wouldn’t have been happening anyway? Does it “add” to carbon sequestration or actually reduce carbon emissions from what would have happened if not credit had been given?

From the point of view of the forest products and agricultural industries, that approach rewards bad behavior. Landowners in one part of the world can be paid for carbon off-sets to induce them not to deforest their land. In the Northwest, where the landowners are already prevented from engaging in mass deforestation, there may be no opportunity for carbon offsets because of the absence of additionality. But even though the carbon sequestration may be identical, the landowner who is paid for carbon off-sets has an advantage on the world market. The contrast is not just between how forests and agricultural lands are treated in North America and Third World countries. The Pacific Northwest has far more restrictions on harvest of forests than exist in the Southeast or the Northeast, so landowners in those regions may have a better chance of arguing that a commitment to keep land in forestry is “additional” and thus should qualify for off-set credits.

A complete focus on additionality could easily have unintended consequences in the forest and agriculture sectors. Both forestry and agriculture compete on a world market, and neither operates with high margins. If cap-and-trade legislation sends additional revenues to parts of the world where there are not adequate laws to prevent deforestation or agricultural practices that deplete the soils of carbon and other minerals, the result may be to make forestry and agriculture in more progressive areas less competitive. That will in turn tend to lead to conversion of more land in those progressive areas to other uses. In short, there are real costs to the environment from putting landowners in progressive areas at a competitive disadvantage.

Section 155 of the Kerry-Boxer bill purports to create a supplemental agriculture and forestry greenhouse gas reduction program. It directs the Secretary of Agriculture to give priority to projects or activities that

1. reduce greenhouse gas emissions or increase sequestration of greenhouse gases, and achieve significant other environmental benefits, such as the improvements of water and air quality or natural resources, and
2. reduce greenhouse gas emissions or sequester carbon in agricultural and forestry operation where there are limited recognized opportunities to achieve such emission reductions or sequestration.

The bill goes on to provide that eligible projects and payments shall reflect the comparable amount that the owners or operators would receive in the offset market if not for compliance with environmental laws that preclude the owners and operators from being eligible for receiving an offset credit. It also provides for compensation for existing good behavior that may not qualify for an “early action allowance”: – a program to allow people to act now, before a cap-and-trade program is in place and not be penalized because once the program is in place they can no longer provide “additionality.” The program tries to reward early adopters and landowners whose actions provide environmental benefits that go beyond what might be required.

As currently drafted, the bill is too vague to provide any certainty as to how it would actually work. Much of the Kerry-Boxer bill will require rule-making, and the ultimate utility of the bill will depend on how those rules turn out. There is also currently no funding provided for the program under Section 155, and it is not clear that without funding, it will provide any relief. But, it is encouraging to see that the bill starts out by recognizing that rewarding those who were already sequestering carbon may be an important. It shouldn’t only be the people who would deforest their land or destroy their agricultural soils who receive benefits from future good behavior.