IMAGE: Richard Lugar with walnut trees
Tom Strickland  /  AP file
Sen. Richard Lugar, R-Ind., stands among walnut trees on his family farm in  Indianapolis, Ind. — trees that he hopes to cash in on by leaving them in the ground.
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updated 10/30/2006 10:26:39 AM ET 2006-10-30T15:26:39

The 10,000 black walnut trees planted on Sen. Richard Lugar’s family farm might someday bring in extra cash, not by being sent to a sawmill, but by simply staying rooted in the soil.

Two years ago, the Indiana Republican enrolled his 604-acre farm in the Chicago Climate Exchange, North America’s only legally binding greenhouse-gas reduction and trading system.

As concerns grow that industrial emissions are fueling global warming, green spaces such as Lugar’s farm have taken on an unforeseen value that could pay off for farmers.

Landowners who agree to maintain tracts of woodlands and grasslands are assigned “carbon credits” by the exchange based on plants’ ability through photosynthesis to pull carbon dioxide from the air and sequester it in their tissue.

Those credits earn farmers income once exchange member corporations purchase them to offset their carbon dioxide emissions to meet voluntary reduction targets.

Lugar’s contract specifies that he cannot harvest his plantation until at least 2010. He received credit for 600 tons of sequestered carbon dioxide.

His credits haven’t sold yet, but they are worth about $2,400 based on the exchange’s current carbon credit prices, said his spokesman, Andy Fisher.

“My hope is that other farmers might see a model and be interested in signing up. And my guess is that they probably will because it’s a good idea,” Lugar said.

1,700 farms and counting
About 1,700 farms have enrolled so far, many of them through organizations such as the Iowa Farm Bureau and the North Dakota Farmers Union that pool carbon credits for sale.

Earlier this month, the National Farmers Union, which represents about 250,000 family farms and ranches, launched a program to encourage farmers to enroll in the exchange, touting the potential financial payoff.

“This is not a huge amount of money, but it could be substantial,” said union spokeswoman Emily Eisenberg.

The National Farmers Union is modeling its program after one created three years ago by its North Dakota affiliate, which has so far signed up about 800,000 acres for the exchange, said Dale Enerson, an economist with the group.

The exchange must verify acreage and its equivalent carbon credits. Enerson expects to begin selling them on the exchange in January.

Carbon credits are currently selling on the exchange for about $1.50 per acre of no-till land and $2.50 per acre for land seeded to grass or alfalfa after Jan. 1, 1999.

The average no-till farm in North Dakota covers 1,300 acres. If a farmer enrolls all of it and it sells on the exchange, Enerson said it would generate about $2,000 a year over the life of the five-year contract, based on current prices.

The Chicago Climate Exchange, which debuted in 2003, trades emission reductions of all six greenhouse gases, including carbon dioxide.

Companies, governments join exchange
About 200 entities, ranging from Fortune 500 companies such as Ford Motor Co. and American Electric Power to cities like Berkeley, Calif., and the states of New Mexico and Illinois, are exchange members, spokesman Rafael Marques said.

Europe operates the only mandatory carbon emissions trading program. It grew out of mandatory greenhouse gas emissions caps European nations enforced as part of the Kyoto Protocol, which the United States has not signed.

The Chicago exchange was set up for American companies that want to voluntarily curb their greenhouse gas releases. Separately, several Northeastern states have formed an initiative to cut carbon dioxide emissions, and California is moving in the same direction.

A coalition of 19 environmental groups eager for the federal government to set greenhouse gas caps — which the Bush administration opposes — issued an open letter in August urging states and municipalities not to join the Chicago exchange’s trading system.

Melissa Carey, a climate change policy specialist with New York-based Environmental Defense, said the group isn’t discouraging farmers from signing up land with the exchange. But she said the exchange falls far short of the greenhouse gas emission trading system environmentalists eventually hope will emerge.

“It’s provided a nice sort of safe learning environment but that’s very different from a government-endorsed market,” she said. “A real-life cap-and-trade system would be a big step forward. For these rural economies, it will make carbon just another crop they harvest.”

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