A Do-Over for Power Plant Regulation Under the CAA
Author
Bob Sussman - Sussman and Associates
Sussman and Associates
Current Issue
July-August 2023
Issue
4
Bob Sussman

The signature domestic climate initiative of the Obama administration was the 2015 Clean Power Plan, an innovative application of the Clean Air Act designed to shift U.S. power generation away from coal and toward non-emitting renewables and lower-emitting natural gas. However, implementation of the plan was blocked by the Supreme Court in 2016 and it was then revoked by the Trump administration. The knockout blow was the Court’s decision last year in West Virginia v. EPA, which held that the CAA does not authorize emission reduction measures “beyond the facility fenceline.”

Undaunted, the agency is again seeking to use its CAA authorities to lower greenhouse gas emissions from fossil-fuel power plants—but is advancing a new framework that it hopes will pass muster under the West Virginia decision. This time around, the stated goal is not fuel switching but requiring facility modifications—installation of carbon capture and storage units and/or substitution of hydrogen for natural gas—that qualify as “best available control technology” and would be implemented within facility boundaries.

Despite the regulatory void following the demise of the Clean Power Plan, decarbonization of the electric power sector has progressed rapidly in the last decade. Between 2011 and 2021, emissions from the sector declined by 28.5 percent, greatly exceeding the CPP’s targets. This has occurred through the retirement of numerous coal plants and the dynamic growth of wind and solar generation. Utilities formerly wedded to fossil fuels have announced ambitious low and zero-emission goals for their fleets by mid-century or earlier. Economics and public opinion, not the threat of regulation, appear to be driving this transformation.

The Inflation Reduction Act greatly reinforces these drivers by providing $369 billion in tax incentives and subsidies not only for renewables but for nuclear power, carbon capture, hydrogen, energy efficiency, and more. The IRA has already stimulated a sharp uptick in new project announcements, as investors and developers adjust their business models to factor in the new inducements provided by Congress. Projections show that the new law will catalyze large greenhouse gas reductions by 2030 beyond those expected from existing policies.

Do we really need to impose a new layer of regulation on top of the inducements for reducing emissions created by the IRA? Proponents of the power plant rule say yes. They emphasize projections that the IRA will reduce economy-wide GHG emissions to 32-42 percent below 2005 levels in 2030, leaving the United States short of its current Paris Agreement target of a 50-52 percent reduction. To close this gap, they argue, the IRA needs to be backstopped by enforceable reduction requirements for our two largest emitting sectors—transportation and electricity generation.

Despite the gains of renewables, fossil fuels remain the dominant generation source in the power sector: in 2021, 21.8 percent of electricity was generated from coal and 38.3 percent from natural gas. Most climate advocates argue for the total replacement of coal and natural gas by non-emitting energy sources. The new EPA proposal, however, assumes that, if required to dramatically reduce emissions, fossil fuel plants will continue to operate and invest in capital-intensive retrofits (carbon capture or co-firing with hydrogen) that meet EPA’s targets. To mandate these reductions under the CAA, EPA must determine that the two methods are the “best system of emission reduction.” This finding is warranted, EPA says, by the IRA’s sizable incentives for these technologies, recent reductions in their cost, and the growing number of projects demonstrating their commercial viability.

Whether this position is legally and politically defensible is already a subject of sharp debate. As the battle lines form, advocates on both sides will face hard questions.

The coal and gas industries lobbied hard for expanded IRA incentives for carbon capture and hydrogen fuels and argued that these technologies would enable coal and gas to remain viable in a carbon-constrained world. Will they now say that widespread deployment is unrealistic and premature even with the IRA’s large tax credits and the substantial lead-time for compliance afforded by EPA’s proposed rule?

At the same time, the Biden administration will face skepticism that the proposed rule is an honest effort to assure the longevity of coal and natural gas plants or merely a calculated maneuver to craft a legal position that might withstand challenge under the West Virginia decision. A perception that EPA expects coal and natural gas plants to close rather than comply with its rule, and that this is the administration’s unspoken goal, could be the deciding factor for a Supreme Court majority predisposed to rein in expansive environmental regulations.

A Do-Over for Power Plant Regulation Under the CAA.

EPA Power Plant Proposal Boosts Carbon Capture and Hydrogen
Author
Ethan Shenkman - Arnold & Porter
Arnold & Porter
Current Issue
July-August 2023
Issue
4
Ethan Shenkman

The Environmental Protection Agency has, once again, rolled out an ambitious plan to reduce carbon emissions from power plants under Section 111 of the Clean Air Act. This new proposal is issued against the backdrop of the agency’s two previous attempts, which struggled in the courts.

The legal saga dates back to 2015, when the Obama EPA released the Clean Power Plan, which relied on a system of “generation shifting” from fossil fuel to lower or zero-carbon sources of energy. But the Supreme Court stayed the rule and struck it down last year under an aggressive application of the Major Questions Doctrine in West Virginia v. EPA. The Trump EPA issued its own regulation, the far-narrower Affordable Clean Energy Rule, but it was set aside by the D.C. Circuit. Although that opinion was reversed and remanded by West Virginia, the Biden administration had no interest in resurrecting ACE. Instead, it designed a power plan of its own, one that is intended to significantly accelerate decarbonization of the nation’s electricity grid while staying within the confines of the high court’s opinion.

The Biden EPA’s proposed rule—issued in generic form, with no fancy acronym or moniker—is certain to set off another round of legal battles, leaving practitioners to wonder: will the third time be the charm?

One of the proposal’s most notable features is its endorsement of clean energy technologies that are centrally featured in the Inflation Reduction Act: carbon capture and sequestration, or CCS, and green hydrogen. In essence, while the IRA provides the carrot, through tax incentives and other funding mechanisms, to help accelerate the development of technologies at scale, EPA’s new rule provides the regulatory stick to require the use of these technologies in certain applications.

Section 111 directs EPA to determine the “best system of emission reduction” “that has been adequately demonstrated,” taking into account costs, non-air quality health and environmental impacts, and energy requirements. For several important categories of electric generating units, EPA has identified CCS and/or low-GHG hydrogen (co-fired with natural gas) as the best system. For example, for new and existing large natural gas-fired power plants that run frequently (i.e., base load units), operators may choose a CCS pathway, which is based on installation of the technology with 90 percent capture by 2035. Alternatively, these units may choose a low-GHG hydrogen pathway, which is based on highly efficient combined cycle technology coupled with co-firing 40 percent low-GHG hydrogen by 2032 and 96 percent by 2038.

The proposed regulation’s treatment of coal-fired power plants also relies in part on CCS, with different standards applying to units based on their expected remaining lifetimes. For existing coal-fired units that plan to operate beyond 2040, the best system is CCS with 90 percent capture by 2030. Coal plants planning to retire by 2040 or earlier have less stringent standards that do not require CCS, with the least stringent standards for plants retiring by 2032, thus incentivizing the phaseout of coal beyond downward trends.

All told, EPA estimates that the new regulations would avoid 617 million metric tons of CO2 emissions through 2042, resulting in $85 billion in climate and public health benefits. EPA also highlights the importance of its proposal for decarbonization of other sectors being electrified, including the transition of automobiles to electric vehicles and of oil and gas heating in buildings to electricity. The proposal is also expected to reduce emissions contributing to particulate matter and ozone pollution, including in communities that have expressed environmental justice concerns.

EPA will ultimately need to persuade the courts that the technologies it relies on have been “adequately demonstrated.” The utilization of CCS has increased with many new projects waiting for permits, but its application in the power sector has been limited to date. EPA’s proposal is optimistic that recent decreases in the cost of CCS, combined with the bump in the tax credit for CCS in the IRA, will translate into increased deployment.

Similarly for hydrogen, the agency cites to IRA tax credits and an influx in funding from the Infrastructure Investment and Jobs Act to provide a significant boost for the technology’s economic feasibility. EPA proposes to define “low-GHG hydrogen” narrowly, with a specified emissions intensity. This mirrors the eligibility criteria for the maximum tax credit available, typically applied to “green” hydrogen produced from electrolysis using renewable electricity sources. Opponents of the rule will likely question whether EPA has authority to set a standard that imposes a carbon-intensity requirement on upstream production of hydrogen.

These are only a few of the many issues that practitioners will be watching, as EPA strives to finalize the rule by June 2024.

EPA Power Plant Proposal Boosts Carbon Capture and Hydrogen.

Much Remarkable, but Insufficient, Progress Decarbonizing the World
Author
Joseph E. Aldy - Harvard Kennedy School
Harvard Kennedy School
Issue
4
Joseph E. Aldy

The 2015 Paris Agreement established the goal of limiting global warming to “well below 2°C above preindustrial levels.” The pact also provides for a periodic assessment of progress toward this objective through a “global stocktake.” In November of this year, the United Ar

The 2015 Paris Agreement established the goal of limiting global warming to “well below 2°C above preindustrial levels.” The pact also provides for a periodic assessment of progress toward this objective through a “global stocktake.” In November of this year, the United Arab Emirates will host the UN climate change talks that will include the first such worldwide assessment.

Over the eight years since the Paris conference, national governments have enhanced their near-term reduction ambitions. The United States has since pledged to cut its emissions at least in half by 2030, compared to its 2015 pledge of a 26-28 percent cut by 2025. The European Union has pledged to reduce its emissions by 55 percent by 2030, compared to its previous pledge of a 40 percent reduction. And about 140 countries have proposed, pledged, or enshrined in domestic law net-zero emission targets for 2050 or soon thereafter.

Governments have also advanced their mitigation actions, driving substantial gains in clean energy. In 2015, 10 percent of the world’s greenhouse gas emissions were covered by a tax or cap-and-trade program; by 2022, this share had increased to 25 percent. The average price on emissions has increased significantly since then across these carbon pricing systems. Over 2015-21, global renewable energy consumption—led by wind and solar power—more than doubled.

The Inflation Reduction Act’s clean energy subsidies are forecast to reduce U.S. carbon dioxide emissions by about 10 percent over the next seven years. The rapid growth in investment in clean energy manufacturing signals the potential to deliver accelerating deployment of next generation technologies. Last year, global installed manufacturing capacity for batteries grew by 72 percent, solar photovoltaics by 39 percent, and electrolyzers by 26 percent.

Despite this progress, fossil fuels still comprise more than 80 percent of global energy consumption. With the exception of 2020, fossil fuel consumption has been higher every year since 2015. Fossil fuel consumption may peak soon—McKinsey’s “Global Energy Perspective 2022” suggests peak consumption by 2025. But this peak will likely occur later and higher than is consistent with the Paris Agreement’s temperature objective.

Last year, the UN Environment Programme estimated that global greenhouse gas emissions would reach about 58 gigatons based on current policies. This level would be 15 gigatons higher than what is necessary to limit warming to 2°C, and 23 gigatons higher than would be consistent with a 1.5°C temperature goal. Cutting the level of annual emissions by at least 15 gigatons over 7 years is daunting. To put this in perspective, the largest single-year decline in global energy carbon dioxide emissions was about 2 gigatons in 2020, primarily reflecting the COVID pandemic.

The emergence of low-cost renewable power has displaced much of fossil fuels in meeting growing energy demand, but has not meaningfully driven existing fossil fuel-related infrastructure into retirement. A 2019 paper in the journal Nature estimated that if current fossil fuel infrastructure continued operating through their expected economic lifetimes—with no new fossil fuel-powered power plants, factories, vehicles, etc. coming online—then the world would likely exceed warming of 1.5°C and could go beyond 2°C. Since this analysis was undertaken, new fossil fuel-powered facilities and transportation systems have entered the market and, in many economies around the world, new fossil fuel infrastructure projects are planned for future investment.

This reflects the political challenge of designing and implementing aggressive decarbonization policies and the associated difficulty of raising the price of fossil energy. Given continued subsidies in developing countries and European energy subsidies in response to the energy shock induced by the Russian invasion of Ukraine, global fossil fuel subsidies exceeded $1 trillion last year for the first time. Outside of California, the vast majority of U.S. climate policy operates through clean energy subsidies, with little if any cost penalty applied to sources of carbon dioxide emissions.

The bottom line is that the global climate will very likely overshoot 1.5°C and likely go beyond 2°C. Even with unprecedented growth in clean energy, atmospheric concentrations of greenhouse gases will exceed levels consistent with these temperature goals. Returning to these temperature levels would require large-scale negative emission technologies, such as the direct air capture of carbon dioxide coupled with underground storage, or the deployment of solar geoengineering to reduce incoming solar energy to the planet’s surface. As temperatures rise, there will be a growing public debate about the potential role of these novel technologies and the need to manage the risks during this period in which we overshoot our temperature goals.

ab Emirates will host the UN climate change talks that will include the first such worldwide assessment.

Over the eight years since the Paris conference, national governments have enhanced their near-term reduction ambitions. The United States has since pledged to cut its emissions at least in half by 2030, compared to its 2015 pledge of a 26-28 percent cut by 2025. The European Union has pledged to reduce its emissions by 55 percent by 2030, compared to its previous pledge of a 40 percent reduction. And about 140 countries have proposed, pledged, or enshrined in domestic law net-zero emission targets for 2050 or soon thereafter.

Governments have also advanced their mitigation actions, driving substantial gains in clean energy. In 2015, 10 percent of the world’s greenhouse gas emissions were covered by a tax or cap-and-trade program; by 2022, this share had increased to 25 percent. The average price on emissions has increased significantly since then across these carbon pricing systems. Over 2015-21, global renewable energy consumption—led by wind and solar power—more than doubled.

The Inflation Reduction Act’s clean energy subsidies are forecast to reduce U.S. carbon dioxide emissions by about 10 percent over the next seven years. The rapid growth in investment in clean energy manufacturing signals the potential to deliver accelerating deployment of next generation technologies. Last year, global installed manufacturing capacity for batteries grew by 72 percent, solar photovoltaics by 39 percent, and electrolyzers by 26 percent.

Despite this progress, fossil fuels still comprise more than 80 percent of global energy consumption. With the exception of 2020, fossil fuel consumption has been higher every year since 2015. Fossil fuel consumption may peak soon—McKinsey’s “Global Energy Perspective 2022” suggests peak consumption by 2025. But this peak will likely occur later and higher than is consistent with the Paris Agreement’s temperature objective.

Last year, the UN Environment Programme estimated that global greenhouse gas emissions would reach about 58 gigatons based on current policies. This level would be 15 gigatons higher than what is necessary to limit warming to 2°C, and 23 gigatons higher than would be consistent with a 1.5°C temperature goal. Cutting the level of annual emissions by at least 15 gigatons over 7 years is daunting. To put this in perspective, the largest single-year decline in global energy carbon dioxide emissions was about 2 gigatons in 2020, primarily reflecting the COVID pandemic.

The emergence of low-cost renewable power has displaced much of fossil fuels in meeting growing energy demand, but has not meaningfully driven existing fossil fuel-related infrastructure into retirement. A 2019 paper in the journal Nature estimated that if current fossil fuel infrastructure continued operating through their expected economic lifetimes—with no new fossil fuel-powered power plants, factories, vehicles, etc. coming online—then the world would likely exceed warming of 1.5°C and could go beyond 2°C. Since this analysis was undertaken, new fossil fuel-powered facilities and transportation systems have entered the market and, in many economies around the world, new fossil fuel infrastructure projects are planned for future investment.

This reflects the political challenge of designing and implementing aggressive decarbonization policies and the associated difficulty of raising the price of fossil energy. Given continued subsidies in developing countries and European energy subsidies in response to the energy shock induced by the Russian invasion of Ukraine, global fossil fuel subsidies exceeded $1 trillion last year for the first time. Outside of California, the vast majority of U.S. climate policy operates through clean energy subsidies, with little if any cost penalty applied to sources of carbon dioxide emissions.

The bottom line is that the global climate will very likely overshoot 1.5°C and likely go beyond 2°C. Even with unprecedented growth in clean energy, atmospheric concentrations of greenhouse gases will exceed levels consistent with these temperature goals. Returning to these temperature levels would require large-scale negative emission technologies, such as the direct air capture of carbon dioxide coupled with underground storage, or the deployment of solar geoengineering to reduce incoming solar energy to the planet’s surface. As temperatures rise, there will be a growing public debate about the potential role of these novel technologies and the need to manage the risks during this period in which we overshoot our temperature goals.

Much Remarkable, but Insufficient, Progress Decarbonizing the World.

A Common Table
Author
Brian Deese - Kennedy School of Government
Daniel Hornung - Yale Law School
Ali Zaidi - Stanford University
Kennedy School of Government
Yale Law School
Stanford University
Current Issue
November-December 2017
Issue
6
A Common Table

In 2018, Congress must reauthorize the Farm Bill. Even in a polarized Washington, the measure represents a unique opportunity to bring disparate parties together to help the sector achieve meaningful reductions in carbon emissions and boost rural economic opportunity

The new Farm Bill that will occupy Washington next year presents a unique chance to make progress on two critical issues: addressing climate change and enhancing economic opportunity for America’s farmers, foresters, and ranchers. Congress should lift its sights and consider new and aggressive ideas to reward and incentivize these businesses for taking advantage of market and technology innovations that utilize the carbon-reduction potential of the U.S. agricultural sector.

This article makes the case for why it is both economically wise and politically practicable for Congress to take this approach, by establishing a major new reverse-auction payment mechanism for agricultural enterprises that undertake cost-effective carbon reduction and storage measures on their land. If done right, this approach could help spur a new “carbon farming” industry by establishing a robust and rigorous agricultural marketplace in the United States for the chemical that combines with oxygen to form the most common greenhouse gas. At the same time, Congress should significantly scale up the federal agricultural research and development budget, to encourage greater innovation in the farm sector with a focus on improving productivity and resilience, producing more on fewer acres, increasing potential revenue to landowners, and keeping America competitive in global agriculture markets.

There are at least three reasons why the timing for progress on carbon reduction in the agricultural sector is ripe.

First, the agricultural sector provides carbon reduction opportunities that work. To understand how, take one example: soil tends to naturally contain and store organic matter. Various agricultural practices including intensive tillage that exposes soil to air can release carbon dioxide to the atmosphere.

Yet modest changes can yield a different result: through a variety of activities such as no-till or reduced-till agriculture — when seeds are drilled directly through crop residues into untouched soil — more carbon remains in the ground rather than in the atmosphere. Other farming practices with similar effect include the use of cover crops and residue management, planting field borders and other areas with perennial grasses and other native plants, and bolstering crop rotations with carbon storage in mind. There are also many additional opportunities beyond cropland that can increase carbon on working agricultural land, including for example sustainably managing grazing practices on pasture and rangeland, integrating more trees into field borders and stream banks, and restoring forests on marginal lands.

And it turns out that these types of land-sector carbon-reducing practices are not only feasible, but quite cost effective. Last year, the United States released a Mid-Century Strategy for Deep Decarbonization, which was designed “not to predict near-term policymaking [or] model the future U.S. energy and land sectors with precision . . . but rather to describe key opportunities and challenges . . . and highlight findings that are robust across scenarios.” One such finding was the continued and enhanced role of the U.S. land sector as a net carbon sink.

The MCS analysis estimated that, by 2050, land-sector and other carbon-removal technologies could sequester 30 to 50 percent of emissions across the economy, while carbon-beneficial forms of biomass could also displace fossil fuel consumption in sectors that are harder to electrify, such as aviation and heavy-duty vehicles. These reductions could take the place of reductions in the electricity sector or elsewhere that would come at a greater cost. On the other hand, in a scenario where the land sector is underutilized, the pressure to cut emissions shifts to other parts of the economy at a significantly higher cost per ton of carbon.

Second, the economic returns for farmers, foresters, and ranchers of a robust, market-based land-sector emission-reduction strategy could be significant and timely. According to the U.S. Department of Agriculture, net farm income in 2017 is down nearly 25 percent from 2015 levels. This decline reflects a growing set of structural challenges facing the U.S. farm sector. A Kansas City Federal Reserve Bank analysis found recently that American farmers are becoming “increasingly reliant on international demand and exports to support domestic prices and farm incomes,” and are challenged by “reduced farmland values,” “weaker credit conditions,” and “increased interest rates and collateral requirements.”

These trends are especially problematic given the slow rebound of employment and wages in rural areas. According to USDA, while employment in metropolitan areas exceeded its pre-recession peak by nearly 5 percent by 2016, employment in nonmetropolitan areas was still nearly 3 percent below its respective peak. Adding to the economic challenges are demographics — the average American farmer is 58 years old, nearly the oldest out of all U.S. professions. New revenues, markets, and skilled jobs are needed to attract the next generation of landowners and managers.

Together, these economic factors reinforce the need for economically efficient policies that help the agricultural center modernize and improve financial returns for farmers, foresters, and ranchers.

Third, the United States is falling behind in the global race for the type of technology-enabled progress in agriculture that carbon farming and sustainable land-sector management represent. The types of R&D that increase agricultural productivity also tend to decrease agricultural carbon intensity, while freeing land to support more forests, biomass production, or high-value natural areas. For example, precision agriculture, which can depend on greater utilization of sensors, drones, big data, and automation, can seed huge carbon reductions — just as it boosts farm productivity overall.

Despite this potential, public agricultural R&D investment in the United States has fallen in real terms over the last decade and a half and has fallen considerably as a share of total public R&D spending in the United States over a longer period. While private agricultural R&D investment has grown in recent years, private R&D dollars are not a substitute for the publicly funded basic research that drives innovation advances.

In 2015, USDA’s Economic Research Service modeled scenarios with different levels of public investment and found that slowdowns in support lead to a significant innovation gap within two decades. Specifically, if the current approach to public investment persists, the growth of agricultural total factor productivity drops dramatically — by almost 40 percent. The analysis concluded that, once depressed, such productivity will be significantly harder to make up by too-little, too-late investments in R&D.

While the United States is slowing down on agricultural R&D, others are not. Over roughly the last two decades, the U.S. share of public investment by major countries in agricultural R&D “fell from 22.5 percent to 13.4 percent.” In particular, the United States has fallen behind Chinese public investment in agricultural science. According to USDA, China passed the United States in public investment in 2008 and has kept focused on the field — following what historically has been a uniquely American playbook. Between 1990 and 2013, Chinese public investment in agricultural R&D grew eight-fold. As a result, U.S. leadership on technology-enabled agriculture is faltering at a moment when the global agricultural market is poised to grow dramatically.

Fortunately, there is a way to simultaneously address these climate, economic, and innovation challenges.

Economists have long acknowledged that the most economically efficient way to reduce greenhouse emissions is to place an economy-wide price on carbon. Modeling suggests the American land sector has the potential to deliver up to 1.2 billion metric tons of carbon dioxide equivalent reductions annually in a $40-per-ton carbon-reduction scenario, similar to anticipated reductions in the energy sector. This underscores the fact that there are clear, cost-effective emissions reductions to be gained from the land sector if appropriate policy mechanisms are in place to drive them. It also reinforces that, in the current environment, where the United States has no economy-wide carbon price and there is no effective nationwide market for land-sector carbon offsets, we are under-incentivizing land-based sequestration activities.

In the absence of an economy-wide policy, the most scalable approach would be to create a new, nationwide program of direct payments and credits to producers who effectively sequester and store carbon. This approach could be implemented in two ways. In states that have established carbon markets, sequestration policies in the land sector can offset carbon emissions reduction obligations of energy-sector entities. California, for example, already allows 8 percent of carbon compliance to come from offsets, including from agriculture.

Such a pay-for-performance model could also be implemented by the federal government — kickstarting action in states that don’t have economy-wide carbon prices and increasing ambition in states that do. Specifically, the federal government could run reverse auctions to make carbon payments to carbon-sequestering projects, using mandatory funds authorized through the Farm Bill.

Such a model is not without precedent. Australia, for example, has a voluntary carbon offset program for farmers called the Carbon Farming Initiative, which after its first years of implementation was rolled into an economy-wide carbon-pricing scheme. Under the CFI, farmers can earn credits for activities like “reducing livestock emissions, increasing efficiency of fertilizer use, enhancing carbon in agricultural soil [and] storing carbon through revegetation and reforestation.” These credits can then be sold to other parties to meet their carbon obligations. While the CFI has been challenged by underfunding and a continuously evolving policy context, over 500 land-based projects have been registered to date, and hundreds more across on-farm energy-saving and fuel-reduction practices. We would need to design a system that works for American stakeholders, but we can learn from the experiences of other countries in launching these programs.

Narrower but analogous programs also exist in the United States. California has forestry, livestock, and rice methane offset protocols as part of its economy-wide cap-and-trade program, under which 173 projects have registered to date. At the federal level, USDA’s Environmental Quality Incentives Program provides hundreds of millions of dollars annually in financial and technical support to farmers engaging in conservation practices that “improve soil, water, plant, animal, air and related natural resources on agricultural land and non-industrial private forestland.” Although EQIP payments are not made on a carbon basis, they support many of the same practices that could qualify under a carbon-payment scheme.

One of the biggest pitfalls identified from Australia’s experience is that uncertainty regarding the availability of annual funding can distort an effectively functioning market. If farmers don’t have a long-term and significant price signal, it is harder for them to justify upfront investments in emissions reducing technologies and techniques. In the U.S. context, providing mandatory funding in the Farm Bill over a 10-year window would help address this concern and would also reduce the risk that farmers simply “pull forward” the lowest-hanging-fruit actions that would have taken place just a few years later — the problem of additionality. A certain and long-term funding source would promote efficient improvements as well as provide enough lead time to finance complementary investments.

A second challenge in establishing an effective market-based payment program is compensating carbon reductions on an apples-to-apples basis across different practices, land-sector types, and regions. Carbon-accounting rules that define eligible practices, ensure additional carbon is being stored or reduced, and provide guidance on how to ensure lasting carbon benefits, can be developed to ensure agricultural activities are being treated robustly and equally throughout the program. Many such protocols already exist in California and under voluntary credit registries like the Voluntary Carbon Standard and American Carbon Registry.

A third challenge is avoiding payments for “hot air,” or emissions reductions that would have occurred even without an offset mechanism. We know there are ways to deal with this issue. For example, in California’s rice farming protocol, farmers who voluntarily participate are required to produce emissions estimates based on historical farm area, crop yield, agricultural techniques, and other measures. They then submit records to calculate emissions reductions once they begin one or more of the three authorized management practices (dry seeding, early drainage, or alternate wetting and drying).

Over the long-term, policymakers should strive for a maximally accurate program that builds on California’s approaches by measuring actual emissions at each farm, compared against a baseline. The federal government and state governments could play an important role in providing farmers with the resources to more easily follow these measurements in real time with advanced monitoring equipment and tracking software. The next generation of carbon tracking and reporting is already under development with support from programs like USDA’s Conservation Innovation Grants.

A final concern is that applying a crediting mechanism to one sector of the economy raises the specter that you end up replacing emissions in the American agricultural sector with emissions elsewhere. This effect, known as leakage, could happen, for example, if U.S. timber prices increased because this program had the effect of decreasing U.S. timber supply and, as a result, global markets demanded more deforestation in other parts of the world, like the Amazon.

A government analysis of Australia’s CFI indicated little reason to suspect significant leakage to date in the program. However, as activities are deemed eligible or ineligible for credit under the program, potential and actual leakage should be fully analyzed and considered. If the United States enacts this program domestically, ultimately the most effective way to fully mitigate leakage risk is to bring as many countries and sectors into the fold as possible, which U.S. policymakers could work on through the existing United Nations climate change negotiations process.

While there will be some investment of time and federal resources needed to develop a reverse auction program as well as expand and strengthen the available suite of rigorous measurement protocols, these actions are critical to unlocking the full potential to reduce carbon emissions from the land sector and even sequester carbon. Within the federal government, this work should be undertaken through cooperation between the Environmental Protection Agency and USDA. Based on experiences elsewhere, however, we know that building a program that serves as a sufficient market signal, compensates emissions reductions on an apples-to-apples basis, maximizes additionality, and avoids leakage is within reach.

In addition to a new market mechanism, policymakers should use the Farm Bill to accelerate the pace of agricultural innovation by improving the techno-economics of low-carbon practices. Public investment in agricultural R&D is a key ingredient of that innovation equation — to lead globally, the United States must steadily and substantially increase USDA and other agencies’ budgets for agricultural R&D by a factor of three by 2030 and focus those efforts on advancing the technologies that will unlock new possibilities in carbon farming and sustainable land-sector management. This will allow the United States to close the public investment gap with China and reestablish itself as the go-to place for agricultural innovation.

To be sure, increasing the research budget is not sufficient. We must do so in a way that optimally promotes acceleration of innovation. The American energy R&D program provides a powerful playbook for how to build out an ecosystem for innovation. As outlined in the Mission Innovation Domestic Implementation Framework, the program is composed of four elements: “foundational mechanisms to increase breadth of knowledge within a scientific discipline”; “translational mechanisms to target incremental improvements along defined tech-roadmaps”; “disruptive mechanisms to validate high-risk, high-reward, off-roadmap ideas”; and “integrational mechanisms to facilitate collaboration across disciplines and stakeholders.” Our increased public investment in agricultural R&D needs to tend to each of these components within the agricultural ecosystem.

Fortunately, significant progress has already occurred. For example, USDA supports land-grant universities to spur foundational R&D by enlisting them in advancing “competitive peer-reviewed research, education, and extension activities through multiple programs, including the Agriculture and Food Research Initiative.” We can bolster the effectiveness of these programs by adding resources and increasing capacity at our national laboratories to focus on agriculture-oriented missions. To facilitate translational work, USDA can define and launch a new priority research effort to channel existing and new R&D resources toward ambitious productivity and resilience goals. The department should be given the green light to increase direct work with experts in other agencies who have begun to look at these important issues in recent years.

For example, ARPA-E, the Department of Energy’s advanced-research program, has already ventured into agricultural R&D where it shared a nexus with energy. We know this approach works to bring forward disruptive technology, so we should consider formally charging ARPA-E (or a similar capacity) to undertake this work on a systematic basis to advance our agriculture goals. Additional interdisciplinary teams like the ones at DOE and NASA can work with USDA to meet our goals for 21st century agriculture.

As with any innovative policy idea during this polarized era in Washington, some will question the political economy of this reverse auction and investment proposal because it is does not fit neatly into preconceived notions of coalition building in Congress and the administration. But this ignores the new coalition that it could attract if policymakers are willing to consider this proposal on its merits: legislators who are looking for policies to reduce emissions and legislators who are looking to bolster the incomes of farmers and rural Americans, all while helping America regain a global competitive advantage in a post-Paris marketplace that is looking for ways to feed a billion more people without breaking the planet.

For that new coalition to come together, Congress should take seriously the transparent stakeholder process that will need to occur for farmers, ranchers, and foresters and the rest of rural America to buy into this program and allow it to realize its climate and economic benefits. To bring and keep all relevant stakeholders to and at the table, the revenues from the auction must function as an incentive, not a mandate. This does not just make political sense, it makes economic sense as well. The social costs of carbon are already being borne by the economy. This auction is an approach to abating those costs in an effective and efficient way.

The process must engage the diversity of actors in the land sector; it must strive to develop workable solutions that all find fair (especially with regard to baselines and measurement, monitoring, and verification); and it must work with all key parties to avoid unintended consequences. We must also leverage state-level policies that support these aims and with which farmers are already familiar, harmonize with existing state-level policies like California’s cap-and-trade program, and spur a race-to-the-top to improve state-level policy. Ultimately, for this program to work, farmers, foresters, and ranchers will need to lead the way. TEF

AMERICAN NEOGOTHIC ❧ In 2018, Congress must reauthorize the Farm Bill. Even in a polarized Washington, the measure represents a unique opportunity to bring disparate parties together to help the sector achieve meaningful reductions in carbon emissions and boost rural economic opportunity.

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