California Biodiesel Alliance News
California's Biodiesel Industry Trade Association
This month, a ruling in the POET I v CARB case came down much quicker and with a more positive result than expected. We include an article on the case by Joshua T. Bledsoe and Max Friedman of Latham & Watkins LLP.
In addition, we add here that it is our understanding that the court's ruling freezes the compliance requirement for diesel at 2017 levels, but that biodiesel can be used for compliance on the same basis as other LCFS fuels.
We are very happy to bring news of the Green California Summit Leadership Award received by Mayor Rey Leon, who is also a member of the Air Resources Board's Environmental Justice Advisory Committee, for his work with biodiesel. There are also
several timely updates on national issues and federal policy,
congratulations for Oregon on a successful first year for their Clean Fuels Standard, and exciting updates on biodiesel producers in the Industry section.
You won't get the complete California biodiesel picture without reading the substantive blurbs in the Policy section below. This month's updates include California's Cap and Trade program; UST issues; and SB 1, which raises taxes on all fuels. SB 1 increases diesel excise tax by 20 cents a gallon to 36 cents and increases diesel sales tax to 5.75 percent (from its current 1.75%).
California Fights Back Against Federal Actions: "
This is How States Will Fight Trump's Energy Order
," is a must-read
LA Times article
Back Issues of this newsletter are available in the Archives on our Members Only webpage.
California Court Rules Against Air Resources Board over LCFS but Preserves 2017 Status Quo
April 13, 2017
, we discussed how California's Low Carbon Fuel Standard (
) had been thrown into a state of potential upheaval by two interrelated legal challenges commonly known as POET I and POET II, including a recent oral argument before the California Court of Appeal for the Fifth Appellate District (Court of Appeal) in POET I. That proceeding aimed to determine whether a lower court correctly dismissed a writ of peremptory mandate (the Writ) requiring the California Air Resources Board (ARB) to remedy violations of the California Environmental Quality Act (CEQA) that occurred during promulgation of the original LCFS regulation. ARB re-adopted the revised LCFS regulations in September 2015, but POET, LLC (POET), a South Dakota-based ethanol producer, contended that these revisions failed to properly discharge ARB's responsibilities under the Writ.
Court Rules Against ARB over NOx Analysis
In its published April 10, 2017 opinion in POET I, the Court of Appeal largely agreed with POET, reversing the lower court's dismissal of the Writ and holding that ARB had failed to comply with CEQA's requirement that it analyze the degree to which nitrogen oxide (NOx) emissions from biodiesel fuels had been and would be impacted by the implementation of the LCFS rules. The Court found that ARB's failure to properly define the scope of the project caused ARB to use an improper baseline against which NOx emissions could be measured. As a result, the Court concluded that ARB's analysis of NOx emissions from biodiesel fuel was deficient under CEQA, and the environmental analysis was inadequate as an informational document disclosing the entirety of the project's impacts.
The Court of Appeal therefore directed the lower court to deny ARB's request for dismissal of the Writ and to "[s]et aside its 2015 approval of the parts of the final [CEQA] Environmental Analysis addressing NOx emissions from biodiesel." The Court further directed ARB to conduct a year-by-year analysis of whether the project as a whole - .e., the implementation of the LCFS rules - is likely to have caused an increase in NOx emissions, with respect to both the program's past operations and its future impacts. This entails establishing a baseline for NOx emissions, and the Court directed ARB to use the conditions as they existed at the time the environmental analysis for the original LCFS regulations commenced (and in no event to use a year later than 2010 for the baseline). ARB must also determine whether any increase in NOx emissions that it identifies has had or is likely to have a significant impact on the environment, or whether impacts are cumulatively considerable, and must address mitigation measures or alternatives, if appropriate.
Silver Linings for ARB
While POET succeeded in forcing ARB to conduct further CEQA analysis, this opinion was far from a total loss for ARB. Indeed, given the Court of Appeal's previously expressed skepticism as to ARB's CEQA procedures with respect to NOx emissions from biodiesel, this opinion represents something of a "best-case scenario" for ARB under the circumstances. Indeed, the Court of Appeal agreed with ARB that it was possible to segregate provisions relating to conventional diesel fuel and its substitutes from the rest of the LCFS, allowing the other provisions to continue according to the re-adopted schedule. Further, the Court decided not to throw out or strike text from the diesel and biodiesel fuel provisions of the LCFS, or even return them to their 2013 levels, as POET had suggested at trial. Instead, the Court of Appeal froze the carbon intensity (CI) targets for diesel and biodiesel fuel provisions at 2017 levels until ARB has completed its corrective action by conducting its baseline analysis and until the trial court has approved this analysis and discharged the Writ. This holding has important implications not only for participants in the LCFS program, but for CEQA practitioners, as well.
The freeze at 2017 levels is far from optimal for ARB, because it will prevent the CI targets from diesel and biodiesel regulations from ratcheting down in 2018, as the CI targets applicable to other fuel types (e.g., gasoline) will continue to decrease. Nevertheless, at trial, ARB suggested that it could conduct its analysis in about nine months. If true, ARB could be in a position to return to trial court and again request discharge of the Writ in early 2018 (although further challenge from POET appears likely based on the history here).
The Court of Appeal also preserved the 2015 Alternative Diesel Fuels (ADF) regulations, which essentially were adopted to counteract the effects of NOx emissions from increased use of biodiesel. To the extent that ARB is required to mitigate NOx emissions under CEQA, these ADF regulations, which take effect in 2018, may go a long way to doing so. Likewise, the Court made clear that ARB "need not suspend its consideration or approval of additional fuel pathways for diesel fuel and its substitutes." This will give ARB some discretion in how it considers alternatives and potential mitigation.
While the Court's opinion gave ARB the opportunity to correct the procedural deficiencies with respect to its re-adoption of the LCFS rules with only minimal impact to the overall LCFS implementation scheme, the Court of Appeal also indicated that its patience with ARB had come to an end. The Court repeatedly asserted that ARB had not acted in good faith (a rare finding in our experience) in its NOx emissions analysis, and that the leniency of its remedy resulted from its desire that "the relief granted . . . should serve the public interest by protecting the environment and providing information to the public and decision makers," rather than "punish agency bad faith." If, after ARB completes its revised NOx emissions analysis, the trial court were to find that ARB had still not met its statutory burden and done so expeditiously and in good faith, the Court of Appeal ordered the trial court to immediately vacate all LCFS provisions relating to diesel fuel and its substitutes (not just biodiesel), to suspend operation and enforcement of those provisions, and perhaps to consider imposing further sanctions on ARB. In short, this appears to be ARB's last chance to comply.
Implications for ARB and LCFS Practitioners
Still, for those engaged in the LCFS markets, the Court of Appeal's opinion must come as something of a relief. At least for the time being, this opinion ensures that the LCFS markets will continue to function essentially unchanged, though it remains to be seen how the LCFS credit prices will react to the result of this case. Likewise, this opinion results in no immediate impact for regulated parties submitting quarterly LCFS reports in 2017 or for the annual LCFS reports to be submitted online by April 30th, 2017 via the
LCFS Reporting Tool
. Indeed, even the 2017 annual report to be submitted by April 30th, 2018 would be unaffected by this ruling, though subsequent reports would be impacted if CI targets remain frozen at 2017 levels next year.
But with the 2020 deadline imposed by Executive Order S-1-07 for ARB to fulfill its mandate to reduce CI of gasoline and diesel by 10% from 2010 levels fast approaching, ARB still faces difficult choices. ARB had already been forced to back-load the ratcheting down of CI targets, placing a heavy burden on the 2018-2020 period, due to the years when targets were frozen at 2013 levels as a result of an earlier ruling in this case. As a result of the most recent opinion, ARB will either have to further steepen the compliance curve in 2019 and 2020, or else miss its statutory CI-reduction target in 2020.
Adding further complexity to this situation is the fact that these issues will be revisited when POET's parallel challenge to the re-adopted LCFS regulations, POET II, comes before the Fresno County Superior Court on July 26th, 2017. Many of the same issues will be before the POET II court, which is why the court delayed oral argument until after POET I had been resolved by the Court of Appeal. While it is likely that the POET II court will simply borrow the rulings of the Court of Appeal in POET I, and many of the POET II issues may be precluded by res judicata, there remains a real possibility that the POET II court could upend certain other portions of the LCFS regulations. This added uncertainty will not be resolved for months-or even longer if the POET II court's ruling is appealed.
Finally, a comment in the Court of Appeal's opinion raises the possibility that the entire LCFS regulatory scheme could become subject to extreme political pressure and perhaps further legal challenge. The POET I court stated that "the public is entitled to know that ARB and [its governing] Board were willing to accept the risk of higher levels of NOx emissions, with the attendant increase in smog and human health impacts, in exchange for lower overall emissions of greenhouse gases to combat global warming." Although the court did not address the potential implications of this comment, a finding that ARB had accepted higher NOx emissions in the name of improved overall greenhouse gas emissions could subject the entire LCFS regulatory regime to pressure from groups arguing it violates AB 32, the state's overarching climate change mitigation statute. AB 32 mandates that "[p]rior to the inclusion of any market-based compliance mechanism in the regulations, to the extent feasible and in furtherance of achieving the statewide greenhouse gas emissions limit, the state board shall . . . [d]esign any market-based compliance mechanism to prevent any increase in the emissions of toxic air contaminants or criteria air pollutants." Cal. Health & Safety Code § 38570(b). LCFS is a "market-based compliance mechanism," and NOx is a "criteria air pollutant," so a finding that NOx levels have increased as a result of LCFS could lead environmental justice and other groups to argue that LCFS had not complied with this statutory requirement to the maximum extent feasible. Further legal challenges could even argue that the entire LCFS program is invalid under AB 32. For this reason, not only will ARB need to ensure that it rigorously adheres to CEQA procedures in conducting its NOx analysis, the results of that analysis will have potentially critical implications for the LCFS program, as well.
Editor's Note: This article was republished with permission from the authors.
City of Huron Mayor Rey Leon Receives
Green California Summit Leadership Award
Mayor of 'Poorest City in Golden State' Recognized
For Innovation in Clean Energy
Russ Teall of Biodico Zero Net Energy Farms and Mayor Rey Leon receiving the Green Leadership award.
Fresno County, Calif. - April 26, 2017 -
Rey Leon, mayor of the City of Huron in the San Joaquin Valley, has received a Green California Summit Leadership Award for his work helping open the first liquid biofuels production facility in the world that is entirely energy self-sufficient.
The project is directed by renewable energy company Biodico's Zero Net Energy Farms, or "ZNEF," which is funded in part by the California Energy Commission to develop an energy solution for farmers and farmworkers that helps reduce greenhouse gas emissions. The award recognizes outstanding environmental achievements by California government, and Leon serves on the technical advisory committee for ZNEF.
"My hometown of Huron is considered the poorest city in the Golden State of California, and my dream is to help integrate clean energy and innovative sustainable systems to improve the quality of life for my community," Mayor Leon said. "Working with ZNEF helps us bridge the gap with places like Silicon Valley and empower our residents to participate in training programs and attain employment in the green economy."
"I am honored to represent leaders like Mayor Rey Leon. Rey is a great advocate for his community and has always been a leader that thinks outside of the box and looks for every opportunity to improve his community," said Assemblymember Dr. Joaquin Arambula (D-Fresno) whose district includes the City of Huron. "Receiving the Green California Summit Leadership Award is testament to his innovative leadership and the residents of Huron will benefit for years to come."
In a bi-partisan showing of support, Senator Anthony Cannella (R-Fresno), who also represents the City of Huron in the California Senate, issued a Senate Certificate of Recognition, which says in part, "On behalf of the California State Senate, I would like to honor you for being a recipient of the Green California Summit Leadership award by the Green California Summit. It is an exceptional honor and one for which you deserve to be
most proud. You are to be commended for your outstanding personal and professional achievements. Thank you for striving to make the City of Huron the greenest farm worker city in the country."
"Mayor Leon's knowledge and expertise have been a tremendous asset in helping develop the ZNEF project, signifying the goals we have in common with the City of Huron, including job creation and generating fully sustainable clean energy for the region," said Russ Teall, president and founder of Biodico. "We look forward to continuing our work with Mayor Leon and congratulate him on this well-deserved honor."
Leon is also president and founder of
, and a member of the Air Resources Board Environmental Justice Advisory Committee (
) in California, a state that now requires 35% of all funding for its "cap-and-trade" carbon emissions program to be spent in and around disadvantaged communities.
U.S. Biodiesel Industry Testifies to ITC on Illegal Trading at Hearing
Hearing highlights damage done to American biodiesel by flood of imports
April 13, 2017
WASHINGTON, D.C. - Today the U.S. Commerce Department announced that it is formally initiating antidumping and countervailing duty investigations of biodiesel imports from Argentina and Indonesia. This decision follows a petition that was filed with the U.S. Department of Commerce and the U.S. International Trade Commission on behalf of the National Biodiesel Board Fair Trade Coalition, which is made up of the National Biodiesel Board and U.S. biodiesel producers.
"Initiation of these investigations validates the allegations in our petition, and we look forward to working with the U.S. government agencies during the course of the next year to enforce America's trade laws," said Anne Steckel, NBB Vice President of Federal Affairs in response to this announcement.
Today the National Biodiesel Board and US biodiesel producers also provided testimony to the International Trade Commission, explaining that Argentine and Indonesian companies are violating trade laws by flooding the U.S. market with dumped and subsidized biodiesel, and how those imports are injuring American manufacturers and workers.
"Make no mistake, 2016 should have been a banner year for U.S. biodiesel producers with demand growth, stable feedstock prices, and regulatory certainty that should have led to profitability and reinvestment in their businesses, but unfortunately that didn't happen," said Steckel. "Instead, dumped and subsidized biodiesel from Argentina and Indonesia entered the United States in record volumes, capturing greater market share at the expense of U.S. producers. The loss of market share has left the domestic industry with substantial unused capacity and the artificially low prices these imports are sold at leave American biodiesel unable to get a fair return for their product."
Because of illegal trade activities, biodiesel imports from Argentina and Indonesia surged by 464 percent from 2014 to 2016. That growth has taken 18.3 percentage points of market share from U.S. manufacturers.
"Negative margins within our industry due to low-priced imports have had a major impact on our company, with a disproportionately greater impact on smaller producers," said Robert Morton, co-founder of Newport Biodiesel, a small biodiesel producer from Rhode Island. "We have halted several plant modification projects as a result of reduced working capital, even for modest projects. Because of this, Newport Biodiesel is being limited in its ability to be a productive US green energy company in what is otherwise a growing market."
The adverse impact of dumped and subsidized imports is not limited to America's small biodiesel producers.
"When we see biodiesel from Argentina selling at a discount to the market price of soyoil, the main input into biodiesel, we know we are facing dumped pricing," said Paul Soanes, CEO and President of Renewable Biofuels (RBF). "The United States is a key market for these exporters, and without a remedy, these unfairly traded imports are likely to continue unabated. That is a further threat to our business."
ccording to the Commerce Department's notice of initiation, there is evidence that dumping margins could be as high as 26.54 percent for Argentina and 28.11 percent for Indonesia. Commerce's notice of initiation also undertakes to investigate subsidies based on numerous government programs in those countries.
Today's staff conference is an important step in the administrative process. The Commission is expected to make its preliminary decision and vote on May 5, 2017. Following that, the next key step will be when the U.S. Department of Commerce announces its preliminary determinations regarding the estimated rates of subsidization and dumping -- expected on or about August 22, 2017 and October 20, 2017, respectively.
National Biodiesel Board Applauds New Biodiesel Tax Credit Bill
Grassley-Cantwell bill would modify the biodiesel tax credit to a production credit
April 26, 2017
WASHINGTON, D.C. - Today the National Biodiesel Board applauded the introduction of a bipartisan biodiesel tax credit bill that would convert the blender's credit for biodiesel to a $1-per-gallon production credit for fuels produced in the United States for three years. The bill provides an additional 10-cent-per-gallon credit for small U.S. biodiesel producers.
"Well-crafted and efficient tax incentives can be powerful policy mechanisms to achieve the nation's energy objectives and to create jobs. But subsidizing foreign manufacturing and hurting U.S. workers were not Congress' intent. We applaud the senators' bill to close this loophole by reforming the credit as a domestic production credit," said Anne Steckel, vice president of federal affairs at the National Biodiesel Board. "Updating this tax credit is necessary to create a level playing field for U.S. biodiesel producers-and it has the added benefit of saving millions of taxpayer dollars."
This bipartisan bill seeks to reinstate the biodiesel and small producers tax credits that expired at the end of 2016, but with a change to who is eligible for the credit. Previously, the tax credit was open to blenders of biodiesel, but this legislation would provide tax credits to
U.S. producers instead of blenders. Doing so prevents subsidization of foreign manufacturers.
Taxpayer dollars and U.S. energy policy should be-and typically are-aimed at incentivizing domestic production, not foreign production. The current structure of the biodiesel tax incentive as a blender's credit increasingly allows foreign producers to access the credit if their fuel is blended in the United States. Importantly, this reform would not block imported biodiesel from entering the U.S. market; in fact, significant imports would likely continue coming to the U.S. and receiving incentives under the Renewable Fuel Standard and California's Low Carbon Fuel Standard.
U.S. biodiesel producers just need a level playing field to compete with foreign production. For example, since 2009, the European Union has levied duties on U.S. biodiesel that effectively block U.S. biodiesel from entering the European market. Additionally, Argentinian biodiesel that receives significant incentives under that country's Differential Export Tax regime is increasingly being shipped to the U.S. market where it also can qualify for the U.S. tax incentive. Without this reform, U.S. tax policy is increasingly creating competitive disparities in which U.S. companies are losing U.S. jobs and market share to subsidized foreign production in Europe, Argentina and other nations. Because of this flood of imports, the National Biodiesel Board also had to file an antidumping and countervailing duty petition against Argentina and Indonesia for violating trade laws and for harming U.S. workers and manufacturers.
Changing the structure of the tax credit also would save taxpayers millions of dollars. Biodiesel imports to the U.S. have grown sharply in recent years, largely as a result of the tax credit. In 2015 alone, the U.S. Treasury spent more than $600 million on tax credits for imported biodiesel and renewable diesel. Importantly, this fuel often had already received subsidies in its country of origin (Argentina, Indonesia and the European Union, for example). According to the Joint Committee on Taxation, reforming the tax incentive would save U.S. taxpayers $90 million as imports are reduced and domestic production grows.
Since being implemented in 2005, the biodiesel tax incentive has played a key role in stimulating growth in the U.S. biodiesel industry, helping it become the first EPA-designated advanced biofuel to reach commercial-scale production nationwide. By helping biodiesel compete on a more level playing field with petroleum, the $1-per-gallon tax credit creates jobs, strengthens U.S. energy security, reduces harmful and costly emissions, diversifies the fuels market and ultimately lowers costs to the consumer. There is a clear correlation between the tax incentive and increased U.S. biodiesel production, which has grown from nearly 100 million gallons in 2005 when the tax incentive was first implemented to almost 1.8 billion gallons in 2016.
The American Renewable Fuel and Job Creation Act of 2017 was introduced by U.S. Senators Chuck Grassley (R-Iowa) and Maria Cantwell (D-Wash.), with 14 other original sponsors, including Pat Roberts (R-Kan.), Heidi Heitkamp (D-N.D.), John Thune (R-S.D.), Sheldon Whitehouse (D-R.I.), Martin Heinrich (D-N.M.), Joni Ernst (R-Neb.), Joe Donnelly (D-Ind.), Roy Blunt (R-Mo.), Mazie Hirono (D-Hawaii), Al Franken (D-Minn.), Patty Murray (D-Wash.), Amy Klobuchar (D-Minn.), Tom Udall (D-N.M.) and Jeanne Shaheen (D-N.H.).
(Oregon Environmental Council)
Oregon's Clean Fuels Standard: 1st Year Successes
Posted April 13, 2017
Transportation is a leading source of Oregon's greenhouse gas emissions - cars, trucks & buses are responsible for nearly 40% of our state's climate pollution. So when it comes to taking responsibility for our part in contributing to climate change, changes to transportation is, naturally, where we can make a big difference.
That's why the Clean Fuels Standard is so critical. There are three ways to reduce transportation climate pollution: cleaner cars, cleaner fuels, and fewer vehicle miles traveled (walking, biking and using transit more). We need all three for a stable climate and healthy communities.
CLEAN FUELS STANDARD
At OEC we've worked tirelessly to pass (2009) and reauthorize Oregon's Clean Fuels Standard (2015) against intense oil industry opposition. Because of our dedication to making clean fuels work, Oregonians now have more choices at the pump, while alternative fuel producers are able to thrive.
The standard ranks fuels according to their life-cycle climate impact and rewards the lowest carbon fuels the most. This creates a built-in incentive for continuous innovation and improvement. Examples of some of the lowest carbon fuels (see graphic below) include biogas produced from waste streams or electricity generated from renewable energy.
1st YEAR - BIG RESULTS
One year in, the Clean Fuels Standard is working. In its first three quarters, clean fuels has displaced more than 589,000 tons of climate pollution - that's30% more than required by the program. Over the life of the program, it will reduce 8.4 million metric tons of climate pollution, the equivalent of taking 1.8 million cars off the road. Oil importers are complying with the law, while DEQ has already certified over 350 different low-carbon fuel options that are eligible in the program.
Businesses all across the state, from Coburg to Sherwood, Klamath Falls to Boardman, and Portland to Medford are signed up and using cleaner fuels. You can check out the success stories at
JOBS FOR OREGON
One of our favorite success stories comes from Portland-headquartered SeQuential, a producer of ultra low-carbon biodiesel made from recycled waste grease. From adding employees to their office in Portland, their retail station in Eugene, processing plant in Salem and truck drivers in White City, the Clean Fuels Standard has allowed SeQuential to grow their business footprint in Oregon by 150 employees. SeQuential recently released a video series explaining how the Clean Fuels Standard is helping their work.
Check it out here.
Before Clean Fuels, Oregonians sent more than $6 billion out of state each year through importing gas and diesel. Now more of these dollars are staying local to support jobs and our economy.
The value to Oregonians from the clean fuels standard:
- immediate and measurable emissions reductions (cleaner air)
- accountability of oil companies if they try to import dirtier petroleum fuels (like tar sands)
- more clean fuel choices
All of this for the equivalent of a fraction of a cent per gallon at the gas pump.
As the world oil market looks poised for serious volatility thanks to meddling from Russia and OPEC, locally-made clean fuels will have more stable prices as well as less pollution, giving businesses and consumers greater protection from oil price spikes.
Oregon's leadership on clean fuels shows not only how our state can lead on climate - demonstrating a real commitment to lower emissions from our largest sources - but also illustrates how the actions we take motivate broader change. Clean fuels standards are working so well here and in California and British Columbia, that Canada is now taking their policy nationwide.
It's been an amazing first year, and we can't wait to see what comes next.
Farmers Could Lead the Way on Climate Action. Here's How
Farmers can profit economically and politically by addressing climate change
By Matthew Russell, Drake University
(THE CONVERSATION) President Trump, congressional Republicans and most American farmers share common positions on climate change: They question the science showing human activity is altering the global climate and are skeptical of using public policy to reduce greenhouse gas pollution
But farmers are in a unique position to tackle climate change. We have the political power, economic incentive and policy tools to do so. What we don't yet have is the political will.
As a fifth-generation Iowa farmer and the resilient agriculture coordinator at the Drake University Agricultural Law Center, I deal with both the challenges and opportunities of climate change. I also see a need for the agriculture community to make tough choices about its policy priorities in the face of dramatic political shifts in Washington.
Pundits, agriculture groups and President Trump have identified farmers as a key demographic in the Republican victory. How we leverage this influence remains to be seen. Trade and immigration policy and the president's fiscal 2018 budget proposal are already creating disagreements between farmers and the Trump administration. We will need to be strategic in using our political power to shape agriculture policy.
My research and farming experience convince me that even in today's unpromising political conditions, agriculture can play an important role in addressing climate change. American farmers can become global leaders in producing what the world needs as much as abundant food: a stable climate.
Farmers wrestle with climate change
Prior to 2009, thousands of farmers across the United States participated in two large-scale projects designed to maintain or increase carbon storage on farmlands: the National Farmers Union Carbon Credit Program and the Iowa Farm Bureau AgraGate program. These programs paid farmers for limiting the number of acres they tilled and for maintaining or establishing grasslands. Payments came through the Chicago Climate Exchange (CCX), a voluntary market in which businesses could buy and sell carbon credits.
But after Barack Obama became president in 2009, farmers overwhelmingly joined the opposition to climate change action. As agriculture journalist Chris Clayton documents in his 2015 book "The Elephant in the Cornfield," farmers viewed Obama's climate strategy - especially the push for cap-and-trade legislation in 2009-2010 - as regulatory overreach by a Democratic Congress and president.
For example, after the Environmental Protection Agency briefly mentioned livestock in a 2008 report on regulating greenhouse gases under the Clean Air Act, farmers and agriculture trade groups erupted in outrage at the prospect of a "cow tax" on methane releases from both ends of the animal. When Congress failed to enact the cap-and-trade bill in 2010, the CCX went out of business.
The election of President Trump and Republican majorities in both houses of Congress eliminates the regulatory "bogeyman" that many farmers organized to reject in 2009. In our opposition, farmers rejected an opportunity to be paid for providing environmental services. Forgoing new sources of income might have made economic sense during the historic commodity boom between 2009 and 2013, but it no longer does.
Recently the farm economy has soured. After several years of historic profitability, 2017 looks to be the fourth straight year of declining income. American farmers face forecasts of stagnant to declining revenues.
Farmers may now be willing to consider new ways of generating income by adopting environmentally friendly practices, such as planting cover crops, extending crop rotations or eliminating tillage. Many farmers are already using these practices on a small scale. To combat climate change, we need to apply them on nearly all of our acres. And we need to develop new environmentally friendly practices.
Farmers are motivated by economic incentives to implement environmental practices. As an example, they recently enrolled nearly 400,000 acres in the USDA Conservation Reserve Program CP-42 which pays farmers to take land out of production and establish habitat for pollinators. Ironically, today we may need to embrace a source of revenue that just eight years ago seemed to many like regulatory overreach.
Opportunities under the Paris Agreement
The world came together in December 2015 to complete the Paris Agreement, which signals a major advance in global commitments to address climate change. All participating countries commit to lowering their greenhouse gas emissions. A number of American businesses have started to support putting a price on carbon.
Agriculture was noticeably absent from global climate discussions, but farmers could profit from policies that monetize carbon and create new markets for carbon emission allowances. At the Paris conference, the French government introduced the 4 per 1000 Initiative, which challenges farmers to increase the carbon in their soils. Other national governments, universities and agricultural organizations have joined this effort to advance agriculture that captures and stores carbon.
Now American farmers face a choice. Do we want to explore ways of providing environmental services to fight climate change? Or will we sit back and allow farmers in other parts of the world to develop these agricultural solutions? California is already showing the way by inviting farmers to participate in public-private efforts to address climate change.
Leveraging the 2018 Farm Bill
The Trump administration rejects policy efforts to protect the climate and indicates the United States may pull out of the Paris Agreement. Therefore, farmers will need to flex our political muscle to support climate solutions. Fortunately, we have powerful policy tools at our disposal.
Agriculture organizations and lawmakers are developing the 2018 farm bill, which will guide U.S. agriculture policy for several years, likely through 2022. Forward-thinking farmers can use this legislation to develop programs to pay for climate-friendly environmental services without radically changing the way we farm. Relatively small innovations can deliver payments for environmental services, which initially would be supported by American taxpayers but later could be funded by carbon markets.
For example, conservation programs currently target soil erosion. Policymakers would need to add rewards for reducing emissions and sequestering carbon. As a starting point, the next farm bill can identify practices that produce these outcomes and incorporate them into existing programs. The bill could also develop new programs to accelerate farmer innovation.
Farmers have a history of working together. Federal programs supporting ethanol and biodiesel production and wind turbines on farmlands all came about because farmers advanced public policies to support these products before clear market demand existed. In the same way, we can use the farm bill to increase farm income by monetizing the public benefits of climate services.
How farmers can lead
When the CCX collapsed in 2010, farm groups had already lost money trying to develop a program before there was enough public support to sustain it. We learned that it requires both government action and business leadership to successfully reward farmers for environmental services.
By advancing payments for climate services in the next farm bill, we can make our farms more resilient and align American agriculture with global business interests. If history is a good predictor of our future, no one is going