[Senate Hearing 108-948]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 108-948

 
                       SOIL CARBON SEQUESTRATION

=======================================================================

                             FIELD HEARING

                               before the

                  SUBCOMMITTEE ON SCIENCE, TECHNOLOGY 
                               AND SPACE

                                 of the

                         COMMITTEE ON COMMERCE,
                      SCIENCE, AND TRANSPORTATION
                          UNITED STATES SENATE

                      ONE HUNDRED EIGHTH CONGRESS

                             FIRST SESSION

                               __________

                              JUNE 6, 2003

                               __________

    Printed for the use of the Committee on Commerce, Science, and 
                             Transportation



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       SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION

                      ONE HUNDRED EIGHTH CONGRESS

                             FIRST SESSION

                     JOHN McCAIN, Arizona, Chairman
TED STEVENS, Alaska                  ERNEST F. HOLLINGS, South 
CONRAD BURNS, Montana                    Carolina, Ranking
TRENT LOTT, Mississippi              DANIEL K. INOUYE, Hawaii
KAY BAILEY HUTCHISON, Texas          JOHN D. ROCKEFELLER IV, West 
OLYMPIA J. SNOWE, Maine                  Virginia
SAM BROWNBACK, Kansas                JOHN F. KERRY, Massachusetts
GORDON H. SMITH, Oregon              JOHN B. BREAUX, Louisiana
PETER G. FITZGERALD, Illinois        BYRON L. DORGAN, North Dakota
JOHN ENSIGN, Nevada                  RON WYDEN, Oregon
GEORGE ALLEN, Virginia               BARBARA BOXER, California
JOHN E. SUNUNU, New Hampshire        BILL NELSON, Florida
                                     MARIA CANTWELL, Washington
                                     FRANK R. LAUTENBERG, New Jersey
      Jeanne Bumpus, Republican Staff Director and General Counsel
             Robert W. Chamberlin, Republican Chief Counsel
      Kevin D. Kayes, Democratic Staff Director and Chief Counsel
                Gregg Elias, Democratic General Counsel
                                 ------                                

             SUBCOMMITTEE ON SCIENCE, TECHNOLOGY, AND SPACE

                    SAM BROWNBACK, Kansas, Chairman
TED STEVENS, Alaska                  JOHN B. BREAUX, Louisiana, Ranking
CONRAD BURNS, Montana                JOHN D. ROCKEFELLER IV, West 
TRENT LOTT, Mississippi                  Virginia
KAY BAILEY HUTCHISON, Texas          JOHN F. KERRY, Massachusetts
JOHN ENSIGN, Nevada                  BYRON L. DORGAN, North Dakota
GEORGE ALLEN, Virginia               RON WYDEN, Oregon
JOHN E. SUNUNU, New Hampshire        BILL NELSON, Florida
                                     FRANK R. LAUTENBERG, New Jersey


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on June 6, 2003.....................................     1
Statement of Senator Brownback...................................     1

                               Witnesses

Blackman, Peggy, President, State Association of Kansas RC&D 
  Councils, on behalf of Kansas Coalition for Carbon Management..    17
    Prepared statement...........................................    19
Carey, Melissa, Climate Change Policy Specialist, Environmental 
  Defense........................................................    32
    Prepared statement...........................................    34
Hartsig, C.P.S.Sc., Theodore A., Senior Program Manager/Soil 
  Scientist, SES, Inc............................................    29
    Prepared statement...........................................    31
Hohenstein, William, Director, Global Change Program Office, U.S. 
  Department of Agriculture......................................     3
    Prepared statement...........................................     6
Rice, Charles W., Professor of Soil Microbiology, Department of 
  Agronomy, Kansas State University..............................     9
    Prepared statement...........................................    11
Walsh, Ph.D., Michael J., Senior Vice President, Chicago Climate 
  Exchange.......................................................    21
    Prepared statement...........................................    25

                                Appendix

Mahoney, Ph.D., James R., Assistant Secretary of Commerce for 
  Oceans and Atmosphere, National Oceanic and Atmospheric 
  Administration (NOAA), prepared statement......................    47


                       SOIL CARBON SEQUESTRATION

                              ----------                              


                          FRIDAY, JUNE 6, 2003

                               U.S. Senate,
    Subcommittee on Science, Technology, and Space,
        Committee on Commerce, Science, and Transportation,
                                                     Manhattan, KS.
    The Subcommittee met, pursuant to notice, at 3:15 p.m. in 
the Alumni Center at Kansas State University in Manhattan, 
Kansas, Hon. Sam Brownback, Chairman of the Subcommittee, 
presiding.

           OPENING STATEMENT OF HON. SAM BROWNBACK, 
                    U.S. SENATOR FROM KANSAS

    Senator Brownback. It is good to be here. Thanks for all of 
you coming out today for this field hearing. I know some had to 
travel some great distances. Mr. Hohenstein came in from 
Washington, D.C. last night. A number of others did as well. 
Others--Dr. Rice--had to walk across the street----
    [Laughter.]
    Senator Brownback.--so he had to come a great distance, 
too, to be able to participate in this. I appreciate all of you 
being here.
    Particularly, we have got a couple of staff members who 
traveled for the Senate Commerce Committee, Margaret Spring and 
Ken LaSala. I want to thank both of them for coming out from 
Washington for this field hearing on soil carbon sequestration.
    When I was Secretary of Agriculture for Kansas, I learned 
quite a few lessons, and I met a lot of good people, some of 
them here in the audience today. One of the lessons I learned 
was to wear good cowboy boots, so that you can clean up easy. 
There are a lot of acres to walk in Kansas, and you are not 
exactly sure what you might step in in the process.
    Now, a close second is, there are not a whole lot of issues 
where you can get a very broad consensus; between the 
agriculture community, the environmental community, the 
conservation community, but I think here we have found one. I 
think you are going to hear some more about it this afternoon, 
on how soil carbon sequestration works for everybody.
    We had the Secretary of Agriculture in this state this 
morning, announcing a major USDA initiative on soil carbon 
sequestration. And I said at that time that I consider carbon 
farming, or carbon sequestration--we have got to find a better 
name for this--a ``three-fer.'' Number one, it is an income for 
U.S. agriculture, for Kansas agriculture. Second, it improves 
the soils by putting more carbon in the soils. And third, it is 
good for the environment. It cleans up the environment. This is 
a ``three-fer,'' and it is one that you will hear a lot of 
broad support from a number of different sections.
    We will hear today from Ms. Carey. She is with one of the 
environmental groups, and they are looking at the productivity 
of soils in Kansas and around the country, seeing the vast 
potential to bring carbon dioxide out of the atmosphere for 
ground storage. Carbon dioxide is perhaps the most difficult of 
the so-called greenhouse gases with which we are faced. Now, 
there are other emissions that scientists believe contribute 
more per ton of emissions to climate change. However, what 
makes CO2 so tricky is that it is everywhere. As I 
drove here, my car emitted CO2. As I speak, I am 
emitting CO2. So some people would say, ``Speak a 
little less''----
    [Laughter.]
    Senator Brownback.--for that or other reasons.
    People talk a lot about silicone these days. But if you 
really look at it, our economy is based on carbon. The tricky 
balance that we have to figure out, if we are to address the 
issue of climate change, is how to influence our net carbon 
output without hurting the economy, and that is the tricky 
issue to cover.
    Many in the environmental community are going to be looking 
toward our agriculture producers to help with this by storing 
more carbon in the soil. For our producers, this notion of 
storing carbon by improving their land management practices has 
the potential to be a whole new market.
    We are at a critical stage in the development of carbon 
sequestration, or carbon farming, and we need to encourage this 
emerging income source and environmental benefit to ensure that 
it manifests itself. And I think we will be hearing from USDA 
today on how we can encourage this along.
    Today, we will hear from all of our witnesses on what we 
are currently doing and what we need to do; what we need to be 
focusing on. Dr. Rice will speak about what science is telling 
us about the potential for carbon sequestration. Mr. Walsh and 
Mr. Hartsig will tell us about their project at the Chicago 
Climate Exchange, which is now becoming functional. Ms. Carey 
will explain the details of a project Environmental Defense 
played a key role in facilitating.
    Somebody who is not testifying, but I have traveled with, 
is the Nature Conservancy. Another interesting aspect of this 
is they have got projects in South America, in Brazil, where a 
number of groups, nonprofit business groups, have gone 
together, bought large tracts of land, and then turning it back 
into forest and measuring the carbon, as a huge carbon sink, 
which is good for the environment, good for the soils there, 
and good for soybean producers here to put some of the land 
back where it should be in rain forests and not broken out in 
soybean production.
    In addition to the work which is going on in the 
Administration and the private sector, we are on the energy 
bill right now in the Senate floor, with our last vote for the 
week last night. Senator Craig, from Idaho, Senator Wyden, a 
Democrat from Oregon, and myself are working to include 
language on carbon sequestration in the Senate energy bill, 
which is the current business on the floor. This amendment will 
encourage both forest and soil sequestration. We have a broad 
bipartisan coalition sponsoring this amendment. We have been 
working with the Energy and Agriculture Committees on both 
sides of the aisle, and we think we have a good shot of sending 
a bill to conference that includes our language. Building on 
the language we were able to include in last year's farm bill 
and the positive steps announced by Secretary Veneman this 
morning, I believe we are looking at a solid boost for the 
sequestration movement.
    One final note. In recent years, this issue of global 
climate change has been very divisive. One of the important 
features of the issue of soil carbon sequestration is that it 
does not require anyone to presuppose the importance of climate 
change. The change in land management that increased the carbon 
load had many other environmental benefits. Better management 
will mean decreased soil run-off, improvements in water 
quality, and, in some cases, improved productivity.
    One other side note, we just had 2 days of debate and votes 
on ethanol on the Senate floor in the energy bill, and we 
passed, overwhelmingly, a ethanol--we beat the ethanol 
amendments back, and we kept in the bill an ethanol package 
that will more than double the use of ethanol in the United 
States. And I am hopeful that we are going to be able to 
shepherd that the whole way through the process. There is also 
a renewable fuels title in it, to increase the use of renewable 
fuels--bio-diesel and some others.
    The reason I mention that here is that that is also a 
contribution that agriculture makes on CO2 
emissions. It does not have a net contribution on 
CO2s, and it is not a release; it is cyclical 
CO2 work that ethanol and bio-diesels contribute, 
and it was something the Secretary cited this morning.
    I, once again, want to thank you for being in attendance. I 
want to thank the witnesses for being here, and I look forward 
to their statements.
    We have two panels that will be testifying today. The first 
panel will be Mr. William Hohenstein. He is the director of 
Global Climate Change Program Office with the U.S. Department 
of Agriculture in Washington, D.C. And our own Dr. Chuck Rice, 
he is a professor at Kansas State University, the lead 
researcher on carbon sequestration, and heads an overall 
committee that is working on this topic.
    Mr. Hohenstein, we will hear your testimony first. 
Appreciate very much your being here to testify.

                STATEMENT OF WILLIAM HOHENSTEIN,

            DIRECTOR, GLOBAL CHANGE PROGRAM OFFICE,

                 U.S. DEPARTMENT OF AGRICULTURE

    Mr. Hohenstein. Mr. Chairman, thank you for the opportunity 
to be here to discuss the Department of Agriculture's carbon 
sequestration programs and to outline the steps within USDA to 
address the long-term challenge of global climate change.
    The issue of climate change cuts broadly across the 
Department, involving several agencies and mission areas. I 
would like to start my testimony by explaining how we are 
organized.
    We coordinate the day-to-day management of the Department's 
activities through the staff-level Global Change Task Force. To 
provide policy guidance, the Secretary created a Climate Change 
Working Group that is chaired by the deputy secretary and 
includes the undersecretaries for all the relevant mission 
areas--Foreign Agriculture Service; Natural Resources and 
Environment; Research, Education, and Economics; and the Rural 
Development--as well as the general counsel and the chief 
economist.
    The Department plays an active role in government-wide 
activities to address climate change as well, including 
scientific research, technology development, international, 
bilateral, and multilateral cooperation, efforts to encourage 
actions of the private sector, and policy development and 
implementation.
    Earlier today, Secretary Ann Veneman announced a series of 
actions that the Department will take to increase carbon 
sequestration and reduce greenhouse-gas emissions from forest 
and agriculture. The actions announced today represent a major 
step for the Department. For the first time, USDA will consider 
the reduction of greenhouse gases in setting priorities and in 
allocating resources within the portfolio of conservation 
programs we administer. The actions announced today build on 
the foundation of ongoing research and technology development 
conducted by our researchers and our cooperatives, including 
the CASMGS Consortium that you will also hear from today.
    Coupled with increases in overall conservation spending, 
these actions to increase carbon sequestration and reduce 
greenhouse-gas emissions will increase them by over 12 million 
tons of carbon equivalent in 2012, which represents 
approximately 12 percent of President Bush's goal to reduce 
greenhouse-gas intensity of the American economy by 18 percent 
in the next decade.
    USDA's conservation programs were designed to offer 
assistance and incentives to farmers and other landowners in 
addressing multiple conservation and environmental challenges. 
Historically, programs have focused on reducing soil erosion, 
improving water quality, creating wildlife habitat, reducing 
air pollution, and protecting sensitive areas.
    While maintaining these priorities, the programs will now 
include explicit consideration of greenhouse gases. We can 
accomplish this without compromising our other objectives, 
because, in many cases, the technologies and practices that 
reduce greenhouse-gas emissions and increase carbon 
sequestration also address other conservation priorities. For 
example, planting trees and other natural covers can increase 
the amount of above- and below-ground carbon. However, land 
does not need to be taken out of production to sequester 
carbon. For example, conservation tillage reduces soil organic 
matter, oxidation, and decomposition; thus, more organic matter 
is maintained in the soil.
    There are many opportunities to apply these practices in 
the U.S. Most U.S. crop-land soils have lost at least a third, 
and some up to 60 percent of the carbon since they were first 
converted to crop production about 200 years ago. This 
diminished carbon pool can be replenished by improving land 
management.
    Under the EQIP program--the Environmental Quality 
Incentives Program--Natural Resource Conservation Service Chief 
Bruce Knight provided guidance to states to reward actions that 
sequester carbon and reduce greenhouse gases within EQIP's 
ranking system. These practices can include the conservation 
practices already mentioned and technologies to reduce methane 
emissions from livestock waste.
    Earlier this week, Chief Knight hosted a summit of one of 
these promising technologies, anaerobic digesters. Anaerobic 
digesters can reduce odors and pathogens and methane, a 
powerful greenhouse gas, from manure. The methane from 
digesters can be captured and used as fuel for power generation 
or direct heating on the farm.
    At the summit, NRCS unveiled three new conservation-
practice standards specifically for digesters. These new 
standards will have two major benefits. They will make it 
easier for producers to fit anaerobic digesters into their EQIP 
contracts as part of comprehensive nutrient-management plans, 
and they will make it easier for producers to use the technical 
service providers to plan and construct the digesters.
    The Conservation Reserve Program and Wetlands Reserve 
Program can provide significant amounts of carbon 
sequestration. On Earth Day, Secretary Veneman announced that 
FSA will target 500,000 acres of continuous sign-up enrollment 
toward bottomland hardwood trees, an action that will increase 
the amount of carbon stored under the CRP. Bottomland hardwoods 
are among the most productive ecosystems for carbon 
sequestration in the U.S.
    In another step to provide incentives for carbon 
sequestration, FSA modified the Environmental Benefits Index 
used to score and rank bids within the program. The revised EBI 
will give points specifically for practices that sequester 
carbon, giving these practices a higher priority under the 
program than they otherwise would have.
    The Forest Service also has responsibilities in 
implementing the actions announced today by the Secretary. 
Using new authority established under the Farm Security and 
Rural Investment Act of 2002, carbon sequestration will be one 
of the formal objectives of the Forest Land Enhancement 
Program, or otherwise known as FLEP. Through FLEP, the Forest 
Service, working with the states, can provide carbon 
sequestration with tree planting, forest stand improvements, 
and agro-forestry. Forest and agriculture can also be the 
source of domestic renewable energy. USDA recently announced 
the availability of $44 million in grants for energy 
efficiency, biomass energy, and bio-products.
    USDA is working with partners in the private sector. This 
February, Secretary Veneman announced commitments from the 
American Forest and Paper Association and the National Rural 
Electric Cooperative Association. These organizations and the 
other companies in industrial sectors are making commitments 
under the Administration's Climate Vision Program. Companies 
with an interest in forest and agriculture carbon sequestration 
are looking to USDA to give them the tools they will need to 
measure and report their actions.
    Last year, USDA was directed to develop new accounting 
rules and guidelines for reporting greenhouse-gas emission 
activities on forest and agricultural lands for use in the 
Department of Energy's Voluntary Greenhouse Gas Reporting 
System. The DOE reporting program is undergoing revisions that 
are expected to be completed in January 2004. The Forest 
Service and NRCS have taken respective leads for the forest and 
agricultural components of these guidelines.
    USDA has undertaken an extensive public-comment process 
that included two well-attended workshops in January 2003. We 
have solicited written comments from the public on our process, 
and we will provide additional opportunities for public input 
before the accounting rules and guidelines are finalized.
    USDA's research program plays an important role in the 
Government's efforts, as well. The budget for USDA's 
participation in the U.S. Global Change Research Program and 
Climate Change Research Initiative has increased in each of the 
last 2 years. USDA's Fiscal Year 2003 budget for the CCRI and 
U.S. GCRP combined is $63 million, up from $57 million in 2002. 
In Fiscal Year 2004, USDA is requesting an additional $7.1 
million for President's CCRI priorities.
    The increases requested in 2004 fall primarily in the 
following areas: improving methods for measuring and estimating 
above- and below-ground carbon storage in forest and 
agricultural systems; collecting carbon-flux measurement data 
at specific locations that can be scaled to regional and 
national estimates; developing management practices and 
techniques for increasing carbon storage sequestration and 
reducing greenhouse-gas emissions; demonstration projects to 
facilitate the incorporation of sequestration into USDA's 
programs; and finalizing the new accounting rules and 
guidelines.
    As we continue our research and improve our understanding 
of how crops, livestock, trees, pests, and other facets of 
ecosystems will respond, either positively or negatively, to 
higher levels of greenhouse gases in the atmosphere, we are now 
moving forward to harness the portfolio of conservation 
programs to build carbon back into the soil and vegetation, 
increasing greenhouse-gas considerations in our conservation 
efforts.
    Thank you for the opportunity to address the Subcommittee. 
I am now available to answer your questions.
    [The prepared statement of Mr. Hohenstein follows:]

   Prepared Statement of William Hohenstein, Director, Global Change 
             Program Office, U.S. Department of Agriculture

    Mr. Chairman and Members of the Subcommittee, thank you for the 
opportunity to discuss the Department of Agriculture's carbon 
sequestration programs and outline the steps being taken within USDA to 
address the long-term challenge of global climate change. The issue of 
climate change cuts broadly across the Department, involving several 
agencies and mission areas. We coordinate the day-to-day management of 
the Department's activities through the Global Change Taskforce, which 
I chair. To provide policy guidance, the Secretary created a climate 
change working group that is chaired by the Deputy Secretary and 
includes the Under Secretaries for all of the relevant mission areas: 
Farm and Foreign Agricultural Service; Natural Resources and the 
Environment; Research, Education, and Economics; and Rural Development, 
as well as the General Counsel and Chief Economist. The Department 
plays an active role in the government's activities to address climate 
change, including: Scientific research, technology development, 
international bilateral and multi-lateral cooperation, efforts to 
encourage actions in the private sector, and policy development and 
implementation.
    Earlier today, Secretary Ann M. Veneman announced a series of 
actions that the Department will take to increase carbon sequestration 
and reduce greenhouse gas emissions from forests and agriculture. The 
actions announced today represent a major step for the Department. For 
the first time, USDA will consider the reduction of greenhouse gases in 
setting priorities and in allocating resources within the portfolio of 
conservation programs we administer. The actions announced today build 
on a foundation of ongoing research and technology development. USDA 
researchers and our cooperators are improving our understanding of 
climate change and its implications for managed and unmanaged natural 
systems, the potential risks to agriculture and forests, and effective 
ways to sequester carbon and reduce greenhouse gas emissions from 
agriculture and forests.
    The actions announced today include financial incentives, technical 
assistance, demonstrations, pilot programs, education, and capacity 
building. We are also setting out to improve our ability to measure and 
monitor changes in carbon storage and greenhouse gas emissions so that 
we can accurately track our progress in implementing these actions.
    Coupled with the increases in overall conservation spending, these 
actions are expected to increase the carbon sequestration and 
greenhouse gas emissions reductions from the conservation programs by 
over 12 million tons of carbon equivalent in 2012, which represents 
approximately 12 percent of President Bush's goal to reduce greenhouse 
gas intensity of the American economy by 18 percent in the next decade.
    USDA's conservation programs were designed to offer assistance and 
incentives to farmers and other landowners in addressing multiple 
conservation and environmental challenges. Historically, programs have 
focused on reducing soil erosion, improving water quality, creating 
wildlife habitat, reducing air pollution, and protecting sensitive 
areas. While maintaining these priorities, the programs will now also 
include explicit consideration of greenhouse gas reductions and carbon 
sequestration. We can accomplish this without compromising our other 
objectives because, in many cases, the technologies and practices that 
reduce greenhouse gas emissions and increase carbon sequestration also 
address other conservation priorities. Planting trees and other natural 
covers can increase above and below-ground carbon. However, cropland 
does not need to be taken out of production to sequester carbon. For 
example, conservation tillage (reduced, minimum, or no-till) reduces 
the extent of soil organic matter oxidation and decomposition by soil 
microorganisms that occur with plowing and tillage. Thus, more of the 
organic matter added to the soil remains, leading to increases in soil 
carbon.
    There are many opportunities to apply these practices in the U.S. 
Most U.S. cropland soils have lost at least a third and some up to 60 
percent of their carbon since they were first converted to crop 
production beginning about 200 years ago. This diminished carbon pool 
can be replenished by improvements in land management.
    Under the Environmental Quality Incentives Program (EQIP), Natural 
Resources Conservation Service (NRCS) Chief Bruce Knight provided 
guidance to states to reward actions that sequester carbon and reduce 
greenhouse gases within the EQIP ranking system. These practices can 
include the soil conservation practices already mentioned and 
technologies to reduce methane emissions from livestock waste.
    Earlier this week, Chief Knight hosted a Summit on one of these 
promising technologies--anaerobic digesters. Anaerobic digesters can 
reduce odors and pathogens and methane (a powerful greenhouse gas) from 
manure. The methane from digesters can be captured and used as fuel for 
power generation or direct heating. The Summit, held in Raleigh, North 
Carolina brought together farmers, Federal and state conservation 
officials, representatives from the power industry, inventors and 
technology developers, and the conservation and environmental 
organization representatives.
    At the summit, NRCS unveiled three new conservation practice 
standards specifically for digesters. The performance standards lay out 
standard expectations for the technology but do not prescribe or 
endorse a particular vendor's product. One of the standards is for 
covers for new and existing lagoons; the second standard is for new 
ambient temperature digesters; and the third standard is for new 
controlled temperature digesters. These new standards will have two 
major benefits. They will make it easier for producers to fit anaerobic 
digesters into their EQIP contracts as part of a comprehensive nutrient 
management plan. They will also make it easier for producers to use 
technical service providers to plan and construct digesters.
    The Conservation Reserve Program (CRP) and Wetlands Reserve Program 
(WRP) can provide significant amounts of carbon sequestration. 
Conversion of cultivated lands back into forests, grasslands or 
wetlands, which occurs on CRP and WRP lands, fosters the accumulation 
of carbon in soils and vegetation. On Earth Day, Secretary Veneman 
announced that the Farm Services Agency (FSA) will target 500,000 acres 
of continuous signup enrollment toward bottomland hardwood trees, an 
action that will increase the amount of carbon stored by the CRP. 
Bottomland hardwoods are among the most productive ecosystems for 
carbon sequestration in the United States. In another step to provide 
incentives for carbon sequestration, FSA modified the environmental 
benefits index (EBI) used to score and rank bids into the program. The 
revised EBI will give points specifically for practices that sequester 
carbon, giving these practices a higher priority under the program than 
they otherwise would have.
    The Forest Service also has responsibilities for implementing 
actions announced by the Secretary today. Using new authority 
established under the Farm Security and Rural Investment Act of 2002, 
carbon sequestration will be one of the formal objectives of the Forest 
Land Enhancement Program (also known as FLEP). Through FLEP, the Forest 
Service, working with States, can promote carbon sequestration with 
tree planting, forest stand improvements, and agroforestry practices.
    Forests and agriculture can also be the source of domestic, 
renewable energy. USDA recently announced the availability of $44 
million in grants for energy efficiency, biomass energy, and biomass 
products development. Twenty-three million dollars of this will be 
available from USDA's Rural Development for the Renewable Energy 
Systems and Energy Efficiency Improvements program to assist farmers, 
ranchers, and rural small businesses to develop renewable energy 
systems and make energy efficiency improvements to their operations. 
Farmers and ranchers are eligible for loan guarantees for renewable 
energy systems, including anaerobic digesters under the Rural Business 
and Industry Programs administered by Rural Development.
    Through the Biomass Research and Development Initiative, in 
cooperation with the Department of Energy, $21 million in grants are 
available to carry out research, development and demonstration of 
biomass energy, biobased products, biofuels and biopower processes. 
USDA also recently announced key revisions to the Commodity Credit 
Corporation Bioenergy Program to expand industrial consumption of 
agricultural commodities by promoting their use in the production of 
ethanol and biodiesel.
    USDA is also working with partners in the private sector. This 
February, Secretary Veneman announced commitments from two industry 
groups with strong natural resource ties. The members of the American 
Forest and Paper Association have committed to actions that they expect 
will improve their greenhouse gas intensity by 12 percent by 2012. The 
members of the National Rural Electric Cooperative Association agreed 
to work with USDA to break down the barriers that farmers and ranchers 
face in generating renewable power. America's rural landowners can be a 
source of solar, wind, and biomass power. These opportunities can be 
win-win partnerships for the rural utilities and farmers.
    Companies and industrial sectors are making commitments under the 
Administration's Climate VISION program. Companies with an interest in 
forest and agricultural carbon sequestration are looking to USDA to 
give them the tools they need to measure and report on their actions.
    Last year, USDA was directed to develop new accounting rules and 
guidelines for reporting greenhouse gas activities on forests and 
agricultural lands. The new accounting rules and guidelines will be 
used by companies and individuals to report their activities to the 
Department of Energy under their voluntary greenhouse gas reporting 
system. The DOE reporting program is undergoing revisions that are 
expected to be completed by January 2004. The Forest Service and NRCS 
have taken the respective leads for the forest and agriculture 
components of the guidelines. USDA has undertaken an extensive public 
comment process including two well-attended workshops in January 2003. 
We solicited written comments from the public on our process and will 
provide additional opportunities for public input before the accounting 
rules and guidelines are finalized.
    USDA's research program plays an important role in the government's 
efforts to understand climate change. The budget for USDA's 
participation in the U.S. Global Change Research Program (USGCRP) and 
Climate Change Research Initiative (CCRI) has increased in each of the 
last two years. The USDA Fiscal Year (FY) 2003 budget for CCRI and 
USGCRP combined is $63 million, up from $57 million in FY 2002. In FY 
2004, USDA is requesting an additional $7.1 million for the President's 
CCRI priorities. The increases requested for FY 2004 fall primarily in 
the following areas:

   Improving the methods for measuring and estimating above and 
        below-ground carbon storage on forest and agriculture systems;

   Collecting carbon flux measurement data at specific 
        locations that can be scaled to regional and national 
        estimates;

   Developing management practices and techniques for 
        increasing carbon sequestration and reducing greenhouse gas 
        emissions;

   Demonstration projects to facilitate the incorporation of 
        carbon sequestration into USDA programs;

   Finalizing the new accounting rules and guidelines for 
        estimating and reporting carbon sequestration and greenhouse 
        gas emissions from forest and agricultural activities.

    Finally, USDA continues to invest in research to improve our 
understanding of how crops, livestock, trees, pests, and other facets 
of ecosystems will respond, either positively or negatively, to higher 
levels of greenhouse gases in the atmosphere. We are seeking cost-
effective ways to make agriculture and forests more adaptable to any 
changes in climate and weather, should they occur. We are pursuing an 
improved understanding of the role of natural and managed ecosystems in 
the global carbon cycle. We are developing technologies and practices 
to reduce emissions of greenhouse gases and increase carbon 
sequestration. We are now harnessing the portfolio of conservation 
programs to build carbon back into the soil and vegetation, integrating 
greenhouse gas considerations in our conservation efforts.
    Thank you again for the opportunity to address this Subcommittee. I 
am now available to answer your questions.

    Senator Brownback. Thank you, Mr. Hohenstein. I do have 
questions that we will go to afterwards, particularly falling 
on what the Secretary announced this morning. But thank you, 
and I am delighted to have you here.
    Dr. Chuck Rice, thank you for joining us.

        STATEMENT OF CHARLES W. RICE, PROFESSOR OF SOIL

             MICROBIOLOGY, DEPARTMENT OF AGRONOMY,

                    KANSAS STATE UNIVERSITY

    Dr. Rice. Thanks. Thank you, Mr. Chairman.
    I am Dr. Chuck Rice, Professor of Soil Microbiology here at 
K-State. Welcome. I am a member and fellow of both the Soil 
Science Society of America and American Society of Agronomy, 
and I am pleased to testify on behalf of soil carbon 
sequestration.
    I have personally been involved in soil organic matter and 
carbon research for nearly 25 years. In addition to my own 
research, I am responsible for directing the Consortium for 
Agriculture Soils Mitigation of Greenhouse Gases, or pronounced 
``chasms.'' This consortium brings together some of the 
Nation's top researchers in the area of soil carbon, 
conservation practices, modeling in economic and policy 
analysis. CASMGS is funded by a grant from the USDA Cooperative 
States Research Education Extension Service.
    Concern has been mounting about the rapid buildup of carbon 
dioxide in the atmosphere and the potential implications for 
climate and the environment. However, as we discussed this 
morning with Secretary Veneman, agriculture can play a key role 
in solving some of these issues. Crops and other plants remove 
carbon dioxide from the atmosphere; and, as they are harvested, 
their residues and roots are deposited in the soil where they 
can remain for long periods of time, hundreds or even thousands 
of years. That is truly sequestered.
    Carbon accumulation in our culture cells can be greatly 
improved by various forms of conservation management, such as 
no-till planting, different crop rotations, and replanting 
depleted soils with grasses. Recent estimates of the potential 
for U.S. agriculture to sequester carbon using existing 
technologies are on the order of 200 million metric tons of 
carbon per year, which represents 15 percent of the current 
carbon emissions in the United States, and this does not even 
include the potential for biomass production for renewable 
fuels, such as ethanol production that was mentioned by the 
Secretary this morning, and it also does not include any 
additional advancements in soil and agriculture sciences.
    Economic analysis suggests that soil carbon sequestration 
is among the most beneficial and cost-effective options 
available for reducing greenhouse gases, particularly over the 
next 30 years, and this buys us time for cleaner energy 
development. Therefore, the goal of our consortium is to 
provide the tools and information needed to successfully 
implement soil carbon sequestration programs so that we may 
lower the accumulation of greenhouse gases in the atmosphere, 
while, at the same time, providing in-common incentives for 
farmers and improving the quality of the soil.
    To achieve this goal, the objectives of our consortium are 
to conduct research into mechanisms controlling carbon 
sequestration. For example, our team is looking at plant 
breeding as a means to improve the quantity and quality of 
carbon entering the soil; thus, ensuring longer stability of 
the soil carbon. And that research is being conducted here at 
K-State.
    A second objective is to evaluate and make recommendations 
for best management practices to sequester carbon in the soil. 
I think this is one of the key short-term objectives of this 
consortium, as it will provide critical science-based 
information for the land managers, so that they know which 
practices they should use to improve the carbon in the soil. 
And if markets develop for carbon, these scientifically derived 
rates of carbon sequestration will provide the land manager and 
the buyer with accurate information so they can develop and 
negotiate contracts. This is really important.
    In addition to the estimation of rates, we are assessing 
the economic and environmental benefits of improving soil 
carbon. We are determining the cost and returns from different 
management practices to help the producer make wise economic 
decisions, as well as the carbon decisions, and we are also 
documenting those other benefits associated with enhanced soil 
carbon. And this includes improved water and soil quality, 
wildlife benefits, and this is important to sustain this 
country's most important natural resource, the soil.
    The third objective is to provide the necessary tools for 
quantifying and verifying soil carbon sequestration. This tool 
kit includes specifications for sampling of reference points on 
farm sites, and utilizing existing data bases, such as those 
developed by the Natural Resource Conservation Service, the 
soil survey and other information. It will also include, in 
verifying, the use of remote sensing and sophisticated computer 
models.
    At Kansas State, we are partnering with USDA and Department 
of Energy in field testing a new laser instrument which can 
make measurements of soil carbon faster and more efficient; 
thus, reducing cost. This kind of research and technology 
development will support a carbon accounting system that will 
be verifiable and transparent for reporting changes in soil 
carbon stocks and be also able to withstand the reasonable 
scrutiny by an independent third party.
    In fact, we are also developing collaboration with other 
countries to provide international consensus on the science 
behind carbon monitoring and verification so that it will be 
consistent worldwide. And just to note, we will be hosting a 
forum at K-State here next fall to look at those issues and 
sharing that information worldwide.
    Finally, a major outcome of the consortium is to provide 
information to stakeholders, including policymakers, so that we 
can devise sound policy, but also to the agriculture sector and 
the energy and transportation industries, to share that 
information among those industries.
    CASMGS has much to offer, but needs to continue support for 
research and education. CASMGS is working in partnership with 
the Federal agencies, such as the USDA's Agriculture Research 
Service, Economic Research Service, and Natural Resource 
Conservation Service, and with private organizations, to 
provide the support for producers' participation and to develop 
reliable carbon offsets. This is a great opportunity for 
agriculture, the environment, the U.S. citizen, and the 
producer.
    And I would like to thank you, Senator, for your initiative 
and leadership on these issues, and I would like to thank you 
for allowing me to testify.
    [The prepared statement of Dr. Rice follows:]

Prepared Statement of Charles W. Rice, Professor of Soil Microbiology, 
            Department of Agronomy, Kansas State University

    Thank you Mr. Chairman and members of the Senate Subcommittee on 
Science, Technology, and Space of the Committee on Commerce, Science, 
and Transportation. I am Dr. Charles W. Rice, Professor of Soil 
Microbiology in the Department of Agronomy at Kansas State University. 
I am a member and Fellow of both the Soil Science Society of America 
and the American Society of Agronomy. I hold membership in several 
other professional organizations including Ecological Society of 
America and American Association for the Advancement of Sciences. I am 
pleased to be invited to testify on soil carbon sequestration. I 
personally have been involved in soil organic matter and carbon 
research for nearly 25 years. In addition to my own research I am 
responsible for directing the Consortium for Agricultural Soils 
Mitigation of Greenhouse Gases (CASMGS). The Consortium brings together 
the Nation's top researchers in the areas of soil carbon, greenhouse 
gas emissions, conservation practices, computer modeling and economic 
analysis, and is funded by a grant from the USDA-Cooperative State 
Research, Education, and Extension Service. The scientists are from 
major land-grant universities and a national laboratory. Participant 
institutions are: Colorado State University, Iowa State University, 
Kansas State University, Michigan State University, Montana State 
University, The Ohio State University, Purdue University, Texas A&M 
University, the University of Nebraska, and the Battelle-Pacific 
Northwest National Laboratory.
    Concern has been mounting about the rapid buildup of carbon dioxide 
(CO2) in the atmosphere and the potential implications for 
climate and the environment. Currently, the amount of CO2 in 
the air is increasing by over 3 billion tons of carbon per year, mainly 
through the burning of fossil fuels (coal, oil and natural gas).
    However, agriculture can help solve these problems. Crops and other 
plants remove CO2 from the atmosphere and convert 
CO2 into organic carbon. After harvest, the organic carbon 
in residues and roots is deposited into the soil, where portions can 
remain for long periods. Carbon accumulation in agricultural soils can 
be greatly improved by various forms of conservation management, such 
as no-till and replanting with grasses.
    Recent estimates of the potential for U.S. agricultural soils to 
sequester carbon, using existing technologies, are on the order of 200 
MMT C per year which represents 15 percent of carbon emissions in the 
U.S. This does not include biomass production for renewable fuels nor 
advancement in soil and agricultural sciences. Economic analysis 
suggests that soil carbon sequestration is among the most beneficial 
and cost effective options available for reducing greenhouse gases, 
particularly over the next 30 years until alternative energy sources 
are developed and become economically feasible.
    Under a private emission trading strategy, U.S. farmers, practicing 
appropriate conservation practices, could offer greenhouse gas or 
carbon credits to carbon emitters. Several companies have begun 
investing in carbon sequestration projects in the U.S. and abroad, on a 
voluntary basis. Early estimates indicate that the potential for a 
carbon ``credits'' market for U.S. agriculture is $1-5 billion per year 
for the next 20-40 years. Alternatively, government programs might be 
implemented to directly support farmers for adopting conservation 
practices. Either strategy would help mitigate the atmosphere's 
greenhouse gas buildup while the needed long-term technical solutions 
are found for producing clean energy.
    Carbon sequestration also benefits the soil. Increasing the organic 
carbon content of our agricultural soils greatly improves the quality 
and sustainability of our agricultural production systems. Higher 
organic carbon contents are directly tied to improved soil fertility 
and crop production capacity. The former Chief of USDA's Natural 
Resource Conservation Service, William Richards, estimates that a 
percentage point increase in soil organic matter content (e.g., going 
from 2 percent to 3 percent organic matter) translates into a $250/acre 
increase in the value of Ohio farmland. Conservation fanning practices 
and increased soil organic carbon provide other collateral benefits by 
reducing soil erosion and improving water quality and wildlife habitat.
    Therefore the goal of our consortium is to provide the tools and 
information needed to successfully implement soil carbon sequestration 
programs so that we may lower the accumulation of greenhouse gases in 
the atmosphere, while providing income and incentives to farmers and 
improving the soil.
    To achieve this goal our objectives are to:

  1.  Conduct research to better understand basic processes and 
        mechanisms controlling carbon sequestration and greenhouse gas 
        emissions. For example our team is looking at plant breeding, 
        prairie management, and the mechanisms of carbon storage in 
        soil as a way to enhance the long-term stability of soil C.

  2.  Evaluate and make recommendations for 'best management practices' 
        to sequester carbon and reduce greenhouse gas emissions from 
        soils. This information is critical to providing science based 
        information to land managers so they know what practices they 
        can use to improve the carbon in the soil. If markets develop 
        for carbon these scientifically derived rates of C 
        sequestration will provide the land manager and the buyer with 
        accurate information to develop and negotiate contracts. In 
        addition we are assessing the economic and environmental 
        benefits of improving soil carbon. We are determining the costs 
        and returns from different management practices to help the 
        producers make wise economic decisions. We are also documenting 
        other benefits associated with enhanced soil C, such as 
        improved water and soil quality which will sustain this 
        country's most important natural resource, the soil.

  3.  Predict and assess carbon sequestration and greenhouse gas 
        emissions at multiple scales, from field and farm-level 
        decisions support tools to analyses of national economic and 
        policy strategies using integrated models.

  4.  Provide the necessary tools for quantifying and verifying soil 
        carbon sequestration rates and greenhouse gas emissions. Our 
        team is developing such tools, which can be used nationwide. 
        This tool kit includes specifications for sampling at specific 
        reference points and utilizing existing soil surveys and 
        databases, such as those developed by the USDA Natural Resource 
        Conservation Service. It also includes the use of remote 
        sensing and sophisticated computer models. We here at Kansas 
        State University are partnering with USDA-NRCS and DOE Los 
        Alamos National Laboratory to field test a new laser instrument 
        which could make measurements of soil carbon faster and more 
        efficient, thus reducing costs. It is this kind of new 
        technology and research that will support the development of a 
        monitoring network. A carbon accounting system must be 
        verifiable and transparent for reporting changes in soil carbon 
        stocks. That is, it must be able to withstand reasonable 
        scrutiny by an independent third party. It must also be cost-
        efficient and based on the best science possible.

  5.  Provide information to stakeholders, including: policy makers, 
        the agricultural sector, and the energy and transportation 
        industries. We are collaborating with other countries to 
        provide the best international science behind carbon monitoring 
        and verification.

    CASMGS has much to offer but needs continued support for research 
and education. CASMGS must continue to develop partnerships with 
Federal agencies, such as the USDA's ARS, ERS, and NRCS, and with 
private organizations to provide support for producers' participation 
and develop reliable carbon offsets. Thus, this is a great opportunity 
for agriculture, the environment, and the U.S. citizen and producer. 
For more information see: http://www.oznet.ksu.eduktec/http://www
.casmgs.colostate.edu/.
                                           Charles W. Rice,
                                    Professor of Soil Microbiology 
                                            and Director of CASMGS,
                                               Kansas State University.

    Senator Brownback. Thank you for your great work in this 
field.
    Also a note--this morning, with the Secretary and myself, 
is Pat Roberts, my colleague in the Senate, and Pat has done a 
great job of being able to get research funding, funding for 
your group, to move this science on forward to a very practical 
implementation phase, and I know is very supportive of this 
overall push and has done a lot of great work on it already.
    I want to ask a follow up on something that the Secretary 
announced this morning, Mr. Hohenstein. She said that people 
would be able to use--and maybe this is not anything new, but I 
want to make sure I am clear on it--be able to sell carbon 
credits off of CRP land. Is that correct? And could you 
elaborate on that?
    Mr. Hohenstein. Sure. The announcement this morning--and, 
actually, the decision to allow the private sale of carbon on 
CRP land codifies an existing decision that was made by FSA and 
NRCS, and it was codified in the interim rule. And essentially 
what it does is, it provides that the sale of carbon credits is 
an exempted use, an allowable use, under CRP contracts. And 
what that will allow is for farmers that are part of CRP 
contracts to enter into private third-party agreements with a 
company or an individual who is interested in purchasing carbon 
credits.
    Senator Brownback. Without any sort of penalty or reduction 
in payments under CRP, the current CRP program.
    Mr. Hohenstein. That is correct.
    Senator Brownback. OK, good. Because I think with the 
amount of acreage we already have in CRP in this state and 
across the country, this is a very practical initial place that 
the carbon is being stored in some significant way.
    Dr. Rice, I have been meeting with you a number of years 
about this topic, and one of the key areas we have had needing 
work on development is just the measurement of carbon in the 
ground. It seems as if we are further along on being able to 
measure carbon in forest projects than we are in cropping 
projects. How far along are we on being able to develop the 
data so that a trading system could develop with the knowledge 
of a reliable system of--here is a carbon unit; it is fixed in 
the soil in Riley County, and this is available for trading? 
Are we close?
    Dr. Rice. Yes, Senator, I think we are much closer to 
developing a system. It depends how you approach it. Certainly, 
there will have to be reference sites--or at least my feeling 
is there should be reference sites, or benchmark sites--to 
document change, but we cannot afford to document every acre or 
every farm. So it is going to take a combination of physical 
measurements, some sites that monitor and measure soil carbon, 
and we can do that relatively cost-effective and with a degree 
of accuracy. We just completed a research project here at K-
State, looking at developing how you sample a GPS'd or 
benchmarked site, and that could be done very efficiently.
    The question then is, How do you extrapolate from those 
reference points? Well, how many of those do you need? And then 
how do you extrapolate up to larger scales that would be 
projects or regional or national level? And again, part of the 
consortium is working on those techniques. But I think 
certainly the models and the remote-sensing techniques are 
there. We just need to apply them. And with the new technology, 
such as this laser instrument, that will make the system even 
more efficient.
    Senator Brownback. Now, how far are we away from the laser 
system that you were talking about?
    Dr. Rice. Well, we are working under a project with NRCS. 
Over the next 2 years, we will be field testing that 
instrument. Basically, we will be able to go around the country 
and field test that to talk about errors or things it should or 
should not be measuring--for example, roots versus soil carbon, 
some things that are more temporary that would not be 
considered sequestered. So I think 2 years from now we will 
have a better view of this instrument. But the technology 
exists right now to measure carbon, as is.
    Senator Brownback. You feel we have the technology today to 
accurately measure fixed carbon in the ground for agricultural 
systems? That you feel like we are in good shape, even today? 
Maybe not as efficient in the measurement, but we can measure 
it and get it accurately measured today.
    Dr. Rice. We can measure reference-point samples that we 
can come back to every three to 5 years, and we can definitely 
measure that, yes.
    Senator Brownback. Say, on a typical 160-acre tract of farm 
land in Kansas, how many reference points are you talking 
about? Or has there been any recommendation made from your 
group as to the number of reference points that would be 
needed?
    Dr. Rice. Well, that is one thing we are working on. And 
the consortium, members of the consortium, are working on 
selecting those sites. One key thing will be determining the 
number of samples, but also stratifying that sample, based on 
landscape and soil type. But certainly we know that soils in a 
landscape will vary in the amount of carbon they can hold.
    Right now, the research is--the information on carbon 
sequestration is using baseline rates for a particular 
practice, and then we are monitoring that practice and then 
going back in and verifying ground truthing; that after x 
number of years, 5 years, that those rates have been achieved. 
And I think that is where some of the other demonstration 
projects going on are working that system out right now.
    Senator Brownback. OK. But the consortium has not said, 
``OK, on 160 acres tillable land, cropping practices, regular 
annual cropping practice you have to have eight ``verified 
sites.'' Is that--I am sure that is an area of active 
discussion in your group.''
    Dr. Rice. Yes, we are, and it is probably a little too 
early to answer that question. There are different ways to 
handle that. Using a good ground base of century model, which 
is--and some other models, but century seems to be one of the 
industry standards--and I know NRCS/USDA is using that model--
that we can use the point samples to verify that the model is 
working. And then you can monitor the landscape with that 
model.
    Senator Brownback. Mr. Hohenstein, the same line of 
questioning. You have noted that you will need some funding, 
and will be doing some testing on the measurement issue. How 
far along are you? And how confident are you, in the system we 
have today for farmland cropping carbon fixing.
    Mr. Hohenstein. Sure. And this question of measurement and 
uncertainty is tremendously important. But it is not unique to 
agriculture. I think it is important to recognize that there 
are other sources of greenhouse gases, methane emissions from 
coal mines and from landfills, that also have some of the same 
issues about measurement uncertainties. I know agriculture 
oftentimes gets singled out as a source of uncertainty, but 
there are other components of the greenhouse-gas inventory that 
are uncertain. So that as a caveat, we are making improvements 
in our measurement systems.
    And in many cases, when we are looking at developing these 
project-level guidelines, we are working back from the national 
inventory methods that we already have in place. And for crops-
land soils, that involves a combination of default guidelines 
that were established by the Intergovernmental Panel on Climate 
Change, as well as the modeling approach that is used in the 
U.S., based on the century model.
    And so using these national statistics that we have and the 
national estimates we have, in essence what we are doing to 
develop the project-level guidelines is disaggregating them 
into their base units so we can provide coefficients and 
estimates for carbon that is stored in particular areas for 
particular management types.
    Also important to note when it comes to uncertainties is 
that the carbon that is sequestered in soil stays there. So, 
over time, it is almost an inherent ability to verify the 
carbon is there, and that carbon builds up over time and is 
easier to measure. So the year-to-year fluctuations of carbon 
are sometimes--have greater uncertainties than the buildup over 
longer periods of time. And that is something that is a unique 
attribute of sequestration practices that tend to reduce their 
uncertainties over the longer term.
    Senator Brownback. It is less uncertain over a long period 
than it is year to year.
    Dr. Hohenstein. That is correct.
    Senator Brownback. Well, do we have reliable measurement 
systems today that if--let us say we have got a tract of 160 
acres, Riley County, Kansas, this soil type, this cropping 
system, this crop--that we can say today, ``This is the amount 
of carbon we believe this will fix,'' with some degree of 
certainty? Or is that still pushing the envelope?
    Dr. Hohenstein. Well, that is essentially what we have been 
asked to develop, by January 2004. And the researchers in the 
Ag Research Service and in NRCS are working on that. Now, we 
are doing that by disaggregating the data that is in these 
models that contains some assumptions, but also information 
about the carbon that is sequestered on particular sites or 
particular regions for particular practices that could be used 
as defaults.
    In addition, we intend to provide measurement protocols. So 
if a farmer or a landowner or a project developer would not 
want to use the default methods and the default approaches, 
there would be a set of guidelines for how to do site-specific 
estimation, potentially in the future using a tool like the one 
that Dr. Rice described.
    Senator Brownback. So you would have the option of either--
we could go with this national set, which has a fair degree of 
modeling involved with it, or you can do an actual set of 
measurements on the particular site that you have, and you 
would offer these as either alternative in a likely future 
system?
    Dr. Hohenstein. I think the guidelines are still under 
development, but that is what we are anticipating we will be 
doing.
    Senator Brownback. OK.
    Dr. Rice, from your perspective, what are some of the 
missing pieces we still need to jump start the carbon 
sequestration trades? What are the pieces?
    Dr. Rice. Well, I think you mentioned one is the confidence 
in the accounting and monitoring and verification, and I think 
we are headed a long way toward that. There are some 
misconceptions that we cannot measure soil carbon, and I think 
we can. But I think once the guidelines come out, there will be 
some clear standards or signals of how you measure carbon. 
There is consistency across the country. Projects are 
developing their own standards or process, and there needs to 
be some consistency so that the industry has confidence, when 
you go from Kansas to Nebraska to Maryland, that there are 
going to be consistent guidelines for that so carbon in Kansas 
is equivalent to carbon in Maryland. I think that will be 
really key.
    Part of it is just an education effort, some confidence 
that the carbon in the soil will stay there. At least some 
members of the public are concerned that if you store carbon, 
and then you go in and erode it away or till it up, you would 
lose that. But I think the industry has less concern about 
that, in the meetings I have been involved in with that.
    So I think it is just developing that understanding that 
the carbon will stay there and that there are other benefits, 
so management will not switch from year to year.
    Senator Brownback. Mr. Hohenstein, the same question from 
your perspective. What are some of the missing pieces we need 
to jump start the carbon sequestration trades?
    Mr. Hohenstein. Well, in order to have----
    Senator Brownback. I want you to pull that microphone 
closer to you.
    Mr. Hohenstein. Sure.
    Well, in order to have trades, you need, really, three 
things. You need a willing buyer, a wiling seller, and a 
commodity. And what we are trying to accomplish through these 
accounting rules and guidelines is to define what this 
commodity, indeed, is.
    Is it going to be perfect? No, there is additional research 
that needs to be done. And we are going to learn a lot by doing 
this that we would probably like to apply maybe 5 years down 
the road after we have some experience with these projects.
    Now, when it comes to the sellers, I think, just during 
this day, we have seen a significant amount of interest from 
the farm community in the potential of carbon sequestration.
    On the buyer side, the President has announced a goal of an 
18 percent reduction in greenhouse-gas intensity by 2012 and 
has challenged the private sector to meet that commitment. And 
he has challenged DOE to develop a revised greenhouse-gas 
reporting system to track progress in meeting those targets.
    It will be interesting to see how this market evolves. Is 
it there yet? No. The market, right now, for carbon 
sequestration credits is speculative and fairly small. But we 
are putting together the building blocks for how this might 
operate.
    Senator Brownback. Do we have anything we can learn from 
other countries working on this topic to date? Are there others 
that are ahead of us or have gone a slightly different path 
that we can learn from?
    Mr. Hohenstein. Well, in fact, I think what I have found is 
that many other countries look to us on this area of carbon 
sequestration and in terms of the basic science and the default 
coefficients and the information on rates of sequestration. And 
we are very active through the Intergovernmental Panel on 
Climate Change in developing new reporting methodologies for 
forests and agriculture.
    But, obviously, there is research going on in Australia and 
in Europe on these issues, as well, and we do work 
collaboratively on these scientific issues.
    Senator Brownback. Good.
    Gentlemen, thank you very much, and we will look forward to 
this continuing to develop and grow. And I appreciate your 
testimony. Mr. Hohenstein, I particularly appreciate you 
traveling out to be here with us in Kansas.
    We will go to our next panel. On that panel will be Ms. 
Peggy Blackman, with Kansas Coalition for Carbon Management; 
Dr. Michael Walsh, Senior Vice President, Chicago Climate 
Exchange; and Mr. Ted Hartsig, Senior Project Manager, SES; and 
Ms. Melissa Carey, Climate Change Policy Specialist, 
Environmental Defense; and we look forward to all of your 
testimony.
    Thanks for joining us today.

         STATEMENT OF PEGGY BLACKMAN, PRESIDENT, STATE 
   ASSOCIATION OF KANSAS RC&D COUNCILS, ON BEHALF OF KANSAS 
                COALITION FOR CARBON MANAGEMENT

    Ms. Blackman. Thank you. It is my privilege.
    I want to thank you, Senator Brownback, for offering Kansas 
this excellent opportunity for the announcement that was made 
today for the continued vitality of rural America--and Kansas, 
in particular--with Secretary Veneman and with the legislation 
that you and Senator Roberts have been a part of. We thank you 
very much, and we congratulate you for your success.
    Senator Brownback. Thank you.
    Ms. Blackman. I am going to be testifying briefly on our 
Kansas Coalition for Carbon Management. I am going to start out 
with giving you just a brief definition of the Kansas RC&D 
Program. Of course, it is a part of the unique program, that 
USDA program, nationwide, and it is led by local volunteer 
councils and administered by the Natural Resource Conservation 
Service.
    The purpose of RC&D is to promote conservation development 
and utilization of natural resources to improve the general 
level of economic activity and to enhance the environment and 
standard of living in all communities. RC&D councils, organized 
and directed by local people to address local concerns, are 
grassroot decisionmakers who adopt projects to address 
community needs. NRCS provides the technical support to operate 
an RC&D area.
    The Kansas Coalition for Carbon Management is a direct 
result of RC&D focusing on an opportunity to ensure promotion 
of best management practices while seeking economic opportunity 
for the agricultural producers and communities of Kansas in 
meeting the challenge of improving the environment through 
atmospheric carbon levels.
    The Kansas Coalition for Carbon Management is a loosely 
structured organization with memberships from various 
organizations and individuals and agencies with an interest in 
carbon management, enhancing renewable energy supplies, and to 
provide economic opportunity to the good stewards of our Kansas 
lands.
    The Kansas RC&D partners in this endeavor are the NRCS, 
Kansas Electric Power Coop, Farm Bureau, Kansas Alliance for 
Wetland and Streams, Kansas State Extension, Kansas Wheat 
Growers, Corn Growers, Kansas Grazing Land Association, and the 
list goes on and on.
    Our goals and objectives of KCCM are to inform and educate 
land managers on carbon management practices. We set up 
displays across the state at different conferences and so forth 
to make everyone aware of the opportunities that are in the 
future and, very excitingly, happening right now. The State 
Association of Kansas RC&Ds are excited about the challenge of 
expanding the Nation's overall supply of clean and affordable 
energy also, with new biomass opportunities and renewable 
energy sources available.
    The State Association goal of RC&D is to cover Kansas with 
RC&D councils by 2005. We are on our way. We cover 70 percent 
of our state. And in 2002, Kansas RC&D councils leveraged 
900,000 in Federal investment coming into our state into $16.9 
million to support community projects across Kansas.
    We have a proven track record of partnering with other 
groups. Our councils of State associations of Kansas are all 
501(c)(3) nonprofit entities.
    The viability of rural Kansas in America is threatened. 
RC&D is recognizing and capitalizing on new opportunities. 
Energy is one of the many areas that presents tremendous 
opportunities for economic gains and improved quality of life.
    We, the grassroots volunteers, are ready and willing to 
serve our communities through RC&D. We are willing and ready to 
give the necessary support, to provide the necessary funding 
for continued research through Kansas State University and our 
other universities across our Nation, which we feel is an 
absolute necessity in order to continue to be the new surge to 
our looking for new energy sources.
    We have worked with Dr. Chuck Rice in participating in a 
pilot project with the Chicago Climate Exchange to further the 
study of marketing the carbon credits. We are participating on 
State and county levels with a carbon study, using funding from 
USDA, conducted by John S. Brenner, our air quality cooperating 
scientist for biomass research development and demonstration 
projects, to be completed over a 3-year period.
    We are concerned about the funding. None of this is going 
to happen without funding to get all of these activities 
started. The research, again, as I said, is an important factor 
in our ability to further study our energy opportunities, our 
biomass, our alternative energy opportunities. We need to 
recognize that the collection of data, the verification of 
carbon credits across our state and across our Nation, is going 
to play an important role, which is going to require some 
support. Volunteers are out there ready and able, through our 
conservation districts and our RC&D councils, to take on that 
challenge, but there will be some costs involved in that. So 
funding is something that is of great consideration for us. And 
we are looking at every avenue to address those needs.
    We want to be able to explore and disseminate marketing 
opportunities they develop, to provide fact sheets and--on 
developed markets as they come to our attention, to develop a 
list of industries and companies taking advantage of carbon 
management so that our producers and our partners in the carbon 
management are aware of all the opportunities.
    We are concerned and are looking into the legal boundaries 
around carbon sequestrations, to define legal ownership of a 
carbon--is it really a mineral? What is it, exactly? What are 
the landowner and tenant implications, and how can we work with 
our producers out there to maybe decipher what exactly needs to 
be done and what type of contracts need to be in place to give 
the best benefit to both the producer and the owner? To 
investigate, also, the tax implications, just exactly where 
will this fit into the overall picture? And to set up an 
aggregate for collection of the data and payment of credits to 
the producers. These are our goals within the Kansas Coalition 
for Carbon Management.
    We want to continue to encourage the research for 
greenhouse-gas-emission reduction and alternative energy uses, 
and we particularly want to educate the public on the benefits 
of using ethanol. We want to particularly investigate biomass 
conversion through the Kansas Bio Energy Workshop that has been 
conducted in our state, and investigate emission reduction and 
sequestering of greenhouse-gases alternatives as part of our 
goals and missions within our coalition.
    It is going to take a partnership out there. It is going to 
take the public-private partnership to get this to be an 
effective venture for our country. And I know it will work, 
with everyone networking and communicating at a level that will 
benefit all.
    And I thank you, again, for this opportunity and for this 
great day that you have provided the state of Kansas.
    [The prepared statement of Ms. Blackman follows:]

 Prepared Statement of Peggy Blackman, President, State Association of 
    Kansas RC&D Councils, on behalf of Kansas Coalition for Carbon 
                               Management

    Kansas Resource Conservation & Development Councils (RC&D) are part 
of the unique, national USDA program, led by local volunteer councils 
and administered by the Natural Resource Conservation Service (NRCS). 
The purpose of RC&D in Kansas is to:

        Promote conservation development, and utilization of natural 
        resources;

        Improve the general level of economic activity; and

        Enhance the environment and standard of living in all 
        communities.

    RC&D Councils are organized and directed by local people to address 
local concerns. Councils are the grassroots decision makers who adopt 
projects to address community needs. NRCS provides the technical 
support to operate a RC&D area.
    The Kansas Coalition for Carbon Management is a direct result of 
``best management practices'', while seeking economic opportunity for 
the agriculture producers and communities of Kansas and meeting the 
challenge of improving the environment through atmospheric carbon 
levels.
    The Kansas Coalition for carbon management is a loosely structured 
organization with membership from various organizations, agencies, and 
individuals with an interest in carbon management enhancing renewable 
energy supplies and providing economic opportunity to the good stewards 
of our Kansas lands. The Kansas RC&D's partners in this endeavor are 
Natural Resource Conservation Service, Kansas Farm Bureau, Kansas 
Electric Power Co-op, Kansas Alliance for Wetlands and Streams (KAW), 
Kansas State University, Kansas No-Till on the Plains, Kansas State 
Cooperative Extension, Kansas Grazing Lands Coalition, Kansas Wheat 
Growers, Kansas Corn Growers Kansas Livestock Association and many more 
agencies, organizations and individuals.
    Our Vision Statement is ``Reduce atmospheric carbon levels through 
sound carbon management.''
    The Mission of KCCM is ``To inform, educate and motivate land 
managers to apply management practices that result in reduced 
atmospheric carbon levels.''
    Goals and Objectives of KCCM are:

  1.  Inform and educate land managers on carbon management practices.

      Displays were set up at Kansas Association of Conservation 
            District Conference, No-Till on the Plains Conference and 
            Kansas State Extension Agronomy Day.

  2.  Explore and disseminate marketing opportunities as they develop.

      Provide fact sheets as markets develop.

      Develop list of industries and/or companies taking advantage of 
            Carbon Management.

  3.  Investigate the legal boundaries around carbon sequestration.

      Define legal ownership of carbon: 1) Is carbon a mineral? 2) 
            Landowners/tenant implications, contracts.

      Investigate tax implications.

      Research contract options.

  4.  Encourage research of greenhouse gas emission reduction and 
        alternative energy uses.

      Educate the public benefits of using ethanol.

      Kansas Corn Growers Association has sponsored ethanol promotion 
            rebate days.

      Investigate bio mass conversion research.

      Kansas Bio-energy Workshop

      Investigate emission reduction and sequestering green house gases 
            alternatives.

      Support continuing research in the development of carbon 
            management.

      The Kansas RC&D provided assistance to Dr. Chuck Rice, Professor, 
            Agronomy Department, Kansas State University, organize a 
            tour for the U.S. Congress, to see first hand, carbon 
            management practices, within the Washington, D.C. area.

      KCCM is participating in a pilot project with the Chicago Climate 
            Exchange to further the study of marketing Carbon Credits.

      Kansas NRCS, RC&D and Conservation Districts are participating in 
            a state/county level Carbon Study using funding from USDA, 
            conducted by John S. Brenner, Air Quality Cooperating 
            Scientist, for Biomass Research, Development and 
            Demonstration Projects to be completed over a three year 
            time frame with the Natural Resource Ecology Laboratory 
            (Colorado State University), National Renewable Energy 
            Laboratory and Oak Ridge National Laboratory to be 
            conducted in three states including Kansas. Kansas RC&D and 
            Conservation Districts with support from NRCS will provide 
            collection of local data by completing the ``Carbon 
            Sequestration Rural Appraisal'' for the area they serve.

    It will take funding for technical assistance, continued research, 
verification of carbon management practices, collection of data, 
education, public relations, training and etc. . . . KCCM's public/
private partnership can acquire and administer the government and 
private funding to achieve our mission, vision and goals.
    The State Association or RC&D goal is to cover Kansas with RC&D 
Councils by 2005. We are well on our way. 70 percent of Kansas is 
currently being served by RC&D Councils. In 2002 Kansas RC&D Councils 
leveraged a $900,000 Federal investment into $16.9 million to support 
community projects across Kansas. We have a proven track record of 
partnering with other groups. Our councils and the state association 
are all 501 3 Non-Profit entities. KCCM and RC&D are interested in 
putting the largest percentage of money from the sale of Carbon Credits 
into the hands of the producers. We are willing and able to participate 
in the study projects across this Nation as we strive to make the 
Carbon Credit a viable commodity or product.
    The viability of rural Kansas and America is threatened. KCCM and 
RC&D are recognizing and capitalizing on new opportunities. Energy is 
one of many area that presents tremendous opportunities for economic 
gains and improved quality of life. We the grassroots volunteers are 
ready and willing to serve our communities. Help us develop the tools 
necessary to accomplish our vision.

    Senator Brownback. Thank you, Ms. Blackman. I appreciate 
that very much.
    Dr. Walsh, with the Chicago Climate Exchange, we are 
delighted to have you here, and we wish you many happy returns. 
You are always welcome. So thank you for being here, and I look 
forward to your testimony.

 STATEMENT OF MICHAEL J. WALSH, Ph.D., SENIOR VICE PRESIDENT, 
                    CHICAGO CLIMATE EXCHANGE

    Dr. Walsh. Thank you, Senator. The red light has been 
broken, so I brought my own here.
    [Laughter.]
    Senator Brownback. OK.
    Dr. Walsh. What a glorious day to be in Kansas, especially 
after last night's soaker.
    [Laughter.]
    Dr. Walsh. You know, this drought is getting a bit old.
    Senator Brownback. Yes.
    Dr. Walsh. And as you well know, Kansans always welcome 
visitors and are so kind, and I feel like there is a little 
extra special here, in my case, as an Illinois native. I notice 
that Abraham Lincoln is not only enshrined in the Agriculture 
Hall of Fame, but there is an absolutely wonderful statue of 
President Lincoln on the grounds of the State Capitol. So I 
feel a little extra connection----
    Senator Brownback. Well----
    Dr. Walsh.--here.
    Senator Brownback.--now that you have started me, we--
[Laughter.]
    Senator Brownback.--you know, this state was settled by 
abolitionists who formed the basic building blocks, first 
building blocks, of the Republican Party that Lincoln was the 
first nominee for, and so this State, born in the battle of the 
Civil War, really identified greatly, at the very outset, with 
Lincoln and his great mission.
    And then, on a sidebar, there was a house about three 
blocks from here that his brother helped build. It is an old 
stone house. I should take you by there to show it to you 
sometime.
    Dr. Walsh. Well, hopefully I will get a chance to chat with 
you later about a fun story of my son in school and his Civil 
War lessons this past week. It has really been a great school 
year for our family, so we are very lucky.
    Senator, the Chicago Climate Exchange is trying to answer 
some of the questions that you raised to the prior panelists of 
what is it going to take to make this a reality? So we began, a 
few years ago now, to form a voluntary, self-regulatory carbon-
reduction program for emissions sources throughout North 
America and in tandem with mitigation projects in the 
agricultural sector and in Brazil. It is a rules-based 
exchange. It has got standards. It has got a very modest 
phased-in reduction schedule over the next 4 years. And we have 
got some traction. We have a critical mass of founding members 
that includes some household corporations here, international 
corporations, like Ford Motor Company, American Electric Power, 
International Paper, DuPont, Motorola, Waste Management. You 
will find it interesting that Manitoba Hydro is a member of the 
exchange. So we have a bit of an international emphasis.
    It is a good-sized market. It is a good starting point for 
us to test this concept out. And the concept is that those 
members who take on the commitment, who find it difficult or 
costly to cut their own emissions, can hire somebody else to 
make that reduction for them. And it could be another 
industrial, or it could be a farmer here in Kansas, who does 
the low-till or no-till or other qualified practices.
    Now, we are inviting businesses and institutions throughout 
Kansas, throughout the country, to take a look at volunteering 
into this program. And one of the institutions is right here. 
We have invited Kansas State to look at becoming a member of 
the exchange for the learning opportunity. Now, I will note 
that there is a bit of a race among Midwestern Universities of 
who is going to be the first founding member of a university of 
our exchange. And I am cheering for Kansas State here, for any 
number of reasons. There are going to be some world-class 
learning opportunities.
    Senator I think we are ahead of the rest of the world here 
in the United States, for some of the--based on a lot of the 
talent that I am about to reference that we have incorporated 
into our market.
    This concept gives farmers in Kansas a chance to provide an 
environmental service, for payment, that really addresses a 
global issue, so one can imagine that farmers in Kansas can 
capture, on behalf of Kansas' businesses, some of their 
greenhouse gases and offset those.
    We think this is the basis for a new export for the U.S. 
farm community. And some people say, well, that sounds kind of 
crazy. But let me tell you that several years ago my colleagues 
and I helped arrange export deals for carbon credits from 
Native American reforestation projects, and for methane 
projects in the United States, to European and Canadian 
investors.
    Now, this program, this Chicago Climate Exchange Market, 
was funded, the research and development phase, by the Joyce 
Foundation, and we have incorporated our own personal 
experience with emissions trading with the Chicago Board of 
Trade and the EPA and lots of other work we have done in 
agricultural and financial markets. We have had a huge amount 
of input. There is a huge and deep talent pool on this topic--
in the agricultural coops, some farm bureaus, NGOs, like the 
Nature Conservancy of Advisors, on the design.
    And we assembled, so that we could get some high-level 
strategy, an advisory board. And some of the gentlemen and 
ladies on there are quite well known. You will know, of course, 
David Boren, former Senator and Governor from Oklahoma, and Mr. 
Bill Curtis, who is a native Kansan, who is an internationally 
famous broadcast journalist. In addition, Chuck Rice--who is 
not only a top-notch researcher, but is a practical fellow, who 
can translate this; it is a very rare skill--served on our Soil 
Carbon Technical Advisory Committee. Your staff, Glen Chambers 
and Sara Hessenflow, have been very encouraging to us all 
along, and we really appreciate that. Over at NRCS, Joel Brown, 
one of the other top experts in the world, Bruce Knight, Maury 
Mausbach, we have had an interesting conversation, where we 
have indicated to them that we could lever this, this voluntary 
pilot, and take a lot of learning opportunities with a little 
of external financial support. So Maury and Bruce have been 
extremely encouraging to us as well.
    As you mentioned, if we are going to manage this issue, we 
need to do it smart. We need to keep our economy growing and 
strong to keep raising living standards. And the right way to 
go on this and other issues is to use a market. Well, markets 
do not just arrive on their own; you have to build them. And we 
are trying to get the first-generation market to get the 
process started.
    And so what we are trying to do, Senator, is really to 
provide proof of concept. The private sector knows how do to 
this. We are trying to develop infrastructure and skills, and 
we are trying to get a little more knowledge on what it might 
cost to mitigate these greenhouse gases. And we are trying to 
show that the private sector can do this in a self-regulatory 
structure. And we think this is entirely consistent with the 
President's calls for leadership in the private sector.
    And finally, it is time to provide some standardization, so 
everybody knows that a ton is a ton is a ton. And Ted's shop is 
going to be, I think, very helpful in helping us do that.
    Let me quickly review the basic structure. This is a bit of 
a new environmental-management method, Senator. We have struck 
a legally binding contract with the 15 founding members of the 
exchange, that they are going to agree to reduce or offset 
their emissions at a declining rate of 1 percent per year over 
the next 4 years. We are going to include all the greenhouse 
gases and ask the Ford Motors and these other companies to 
really focus first on their major emissions sources. And if 
they would like, they could bring in their facilities in Canada 
and Mexico.
    Now, they have to follow the rules on monitoring and 
reporting of emissions. And annually we are going to hold them 
to account. In addition, for public credibility and for a real 
market, we have to have an auditor, and we have engaged the 
NASD to provide auditing services. And for the agricultural 
projects, we are in a great conversation with Ted's shop at SES 
Corp., to make sure that the projects are being done and the 
standards are being met.
    Now, those companies that cannot reduce their own emissions 
at low cost can engage somebody else. And the others that they 
can engage include the Midwestern section of the United States 
agricultural community.
    So this is potentially a new income source. And as you 
mentioned this morning, it is going to start small, but we 
think it could grow, over time. But to make this happen, we had 
to strip away a lot of the complexities and start very simple 
and use some standards. And we have established standards for 
the Central U.S. for continuous no-till and continuous low-
till, for grass plantings, including, potentially, CRP, tree 
plantings, and methane capture. And in addition, renewable 
fuels are treated as carbon-neutral, so that is another boost 
for those biomass-based fuels.
    Now, we think that this is potentially a new crop. It is 
going to take a while to build the delivery and quantification 
mechanisms, but while providing this environmental service, 
everybody is recognizing that there is another huge hidden 
asset here, Senator, and that is the benefits for water 
quality. And in this state and many Midwestern states, anything 
we can do to improve stream quality and water quality is 
critically important and may also be another source of 
environmental service payment at some point.
    Now, let me just close on a couple of notes. To officially 
organize this market to deal with, hopefully, thousands of 
farmers, we need aggregators. And we are working with the 
Kansas Coalition for Carbon Management--and we have greatly 
appreciated their input--with State farm bureaus and insurance 
companies. And we hope that several organizations in Kansas 
will take the chance to learn in this voluntary pilot program 
to get us started.
    As you might imagine, there are a lot of challenges. And 
Peggy referred to the technical and the legal challenges, the 
accounting and tax issues. We think the only way to really 
smoke those out, to really understand them, is to give it a 
try. And we think we have initial answers for some of those 
complicated questions.
    As I mentioned earlier, there is going to be a huge 
opportunity to leverage this program to learn a lot more about 
how we do global positioning systems, how we do mapping, how we 
do direct verification. And I noted that we have been in 
conversations with NRCS on a discussion that a little bit of 
support money can go a very long way in growing the 
capabilities in this area.
    So let me just close by noting that to try to ensure the 
quality and the value to the farmers and everybody else in this 
program, the Chicago Climate Exchange is going to register with 
the appropriate Government data bases--all the reductions and 
all the projects--so that if there is ever further recognition, 
we want to make sure that people get credited for their 
behavior and their leadership early on here.
    So, to close, this is really the first program in the world 
to directly incorporate agricultural and other carbon 
sequestration into the market, and we think that this idea of 
both an above-ground and a below-ground crop is viable now. And 
there will be an announcement next week indicating when we will 
launch the trading, later this year. And we will include 
farmers from Kansas this year.
    And I apologize for going over my time budget, Senator.
    [The prepared statement of Dr. Walsh follows:]

 Prepared Statement of Michael J. Walsh, Ph.D., Senior Vice President, 
                        Chicago Climate Exchange

Introduction
    The Chicago Climate Exchange extends its sincere appreciation for 
the opportunity to participate in this panel. This written statement is 
accompanied by several background items and press clips that are 
germane to the efforts of the Subcommittee.
    The Chicago Climate Exchange (CCX) is a voluntary pilot market for 
reducing and trading greenhouse gases throughout North America, and 
through projects in Brazil. The market is a rules-based, self-
regulatory exchange that employs a phased-in emission reduction 
schedule for years 2003 through 2006. At this time the CCX commitments 
have been agreed by fourteen companies and the City of Chicago. The 
corporate Members include Ford Motor Company, American Electric Power, 
International Paper, DuPont, Motorola and Waste Management.
    The CCX founding Members have combined annual greenhouse emissions 
that are nearly half of the United Kingdom. The pilot market Members 
represent the critical mass needed to provide a valuable demonstration 
and learning process. The full list of current CCX Members is provided 
in Attachment 1.
    Chicago Climate Exchange members that cannot reduce their own 
emissions can purchase credits from those who make extra emission cuts, 
or can buy offsets from individual mitigation projects, such as 
agricultural projects, including no-and low-till farming, grass and 
tree plantings and methane collection at livestock operations.
    CCX is inviting Kansas businesses and institutions to become 
Exchange Members. We are working with the Kansas agricultural community 
to assure they can be market participants from the outset. Both groups 
can enjoy world-class learning opportunities, and would realize 
reputational benefits and business advantages by demonstrating 
leadership in voluntarily acting to address a major environmental risk.
    The environmental services provided by farmers offer a local 
solution to a global issue. Kansas farmers can profit by sequestering 
carbon on behalf of Kansas industrial companies.
    To supplement grain exports, we believe the U.S. farm sector will 
be capable of exporting carbon credits to other countries through the 
CCX. If this sounds somewhat futuristic, I should note that before we 
began forming CCX in 1999, my colleagues and I arranged several carbon 
credit export deals involving sale of Native American reforestation 
credits to a London firm, and sales of methane-based credits to Canada 
and The Netherlands.
    The research and development phases of the Chicago Climate Exchange 
were funded by grants from the Joyce Foundation which were administered 
by Northwestern University's Kellogg Graduate School of Management.
    The design of CCX incorporates lessons from twelve years of 
experience with emissions trading, including our management of the 
partnership between the Chicago Board of Trade and the U.S. 
Environmental Protection Agency in administering parts of the highly 
successful sulfur dioxide trading program for reducing acid rain. We 
have also incorporated expertise gained in the design, launch and 
trading of numerous financial, agricultural and energy markets.
    As you might expect, the design and pending launch of this pilot 
market has been a challenging endeavor. We have benefited greatly from 
the support, encouragement and technical input of many dozens of 
individuals in the corporate, university, public and non-governmental 
sectors. Detailed input has been provided by numerous agricultural co-
ops and state Farm Bureaus, and by NGOs such as The Nature Conservancy 
and the World Resources Institute.
    Early in the CCX design phase we convened a high-level advisory 
board to gather strategic input and assist with outreach. Among the 
dignitaries on this board are Former Senator David Boren from Oklahoma 
and Former Illinois Governor James Thompson; environmental leaders such 
as Thomas Lovejoy of the Heinz Foundation and Jonathan Lash of WRI; and 
notable business and international leaders such as David Moran of Dow 
Jones Indices, Jeffrey Garten, Dean of the Yale Business School, and 
Maurice Strong, convener of the 1992 Rio de Janeiro ``Earth Summit'' 
(United Nations Conference on Environment and Development). Mr. Bill 
Kurtis, a native Kansan and well-known broadcast journalist who focuses 
on major social and environmental issues, is also a Member of the 
Advisory Board. Attachment 2 lists the full membership of the CCX 
design phase Advisory Board.
    We also greatly appreciate the technical input that has been 
provided by leading experts such as Professor Chuck Rice of Kansas 
State and Joel Brown of the Natural Resources Conservation Service 
(NRCS). We have appreciated the encouragement of your professional 
staff, in particular Glen Chambers and Sarah Hessenflow, and from the 
Kansas Coalition for Carbon Management. We are pleased to note that we 
have also been encouraged by Mr. Bruce Knight, Chief of the NRCS, and 
his Deputy, Mr. Maury Mausbach. NRCS has been kind enough to consider 
our request for a modest amount of financial assistance that CCX would 
apply to maximize learning opportunities and technical advances for the 
agricultural sector.

Acting Now to Build Institutions
    We will need flexibility if we are to succeed in managing 
greenhouse gases while growing the worldwide economy and raising living 
standards. It would be prudent to harness the maximum possible number 
of mitigation options, including carbon sequestration, and to use a 
market mechanism to assure we orchestrate the deployment of these 
options most cost-effectively.
    Market institutions do not emerge overnight. A voluntary pilot 
market gives us the chance to begin building those institutions right 
away, and will let us develop and spread the needed expertise and 
evolve the markets over time. It is important to get started now to 
organize and standardize the market systems. These are the goals of the 
Chicago Climate Exchange. CCX aims to:

   Provide proof of concept: demonstrate that a quantified 
        emission reduction goal can be achieved efficiently through 
        emission allowance trading supplemented with project-based 
        offsets from sequestration and other mitigation activities;

   Develop market infrastructure and skills;

   Dissemination of price information and other market-critical 
        information;

   Demonstrate that a private sector, self-regulatory system 
        can cost-effectively achieve real progress in managing global 
        warming emissions;

   Standardize trading rules, start small and grow, provide a 
        model.

    We believe the voluntary, pilot nature of CCX is entirely 
consistent with President Bush's call for private sector leadership, 
voluntary programs, use of flexibility, and incorporation of carbon 
sequestration initiatives in the market.
    The core elements of the Chicago Climate Exchange are:

   Each exchange Member adopts a four-year commitment to either 
        reduce or offset their GHG emissions 1 percent per year from a 
        1998 through 2001 baseline (resulting in emissions that are 4 
        percent below the baseline in 2006);

   All six types of greenhouse gases are included; Members 
        include all their major emission sources and can opt-in small 
        sources and sources in Canada and Mexico;

   Emissions must be monitored and reported in accordance with 
        exchanges rules, and each Member must annually ``true-up'' its 
        total emissions by tendering allowances and offsets;

   The premier private sector regulatory agency, NASD, has been 
        engaged by CCX to provide trading surveillance, and audits of 
        Member emissions and project verifications;

   CCX Members who can reduce emissions beyond the reduction 
        schedule can sell their extra allowances to those who cannot 
        cut their own emissions, or who find it costly to do so;

   Members can also achieve the CCX reduction commitments by 
        purchasing registered and verified emission ``offsets'' 
        produced by qualifying agricultural, reforestation and methane 
        projects, as well as projects in Brazil.

    All projects and member accounts are held in an Internet-accessible 
registry and trading occurs on a linked electronic trading platform. 
CCX is currently in detailed discussions with SES Corp, a Kansas-based 
agricultural verification firm, for the provision of in-field 
inspection services for agricultural offset projects.
Participation by Agricultural Sector in the Chicago Climate Exchange
    Through carbon sequestration and other low-cost emission 
reductions, the emerging international carbon markets introduce 
opportunities for farmers to realize a new income stream from provision 
of global environmental services. CCX has developed simple and credible 
standardized rules for issuing carbon credits for the following 
mitigation activities in the agricultural sector:

   carbon sequestration resulting from:

     continuous no-till and low-till cropping in the 
            central U.S.;

     grass plantings in the central U.S.;

     tree plantings;

   emission reductions resulting from methane capture and 
        collection and combustion.

    Importantly, the CCX accounting rules treat renewable fuels, such 
as crop residue and ethanol, as carbon neutral, thereby providing an 
additional financial incentive to use these fuels in place of fossil 
fuels.
    Revenues from sales of agricultural carbon credits in CCX can 
provide a second ``crop'' that rewards farmers for provision of a 
global environmental service, while also retaining soil, and conserving 
and improving local water quality. This latter benefit may someday 
represent an additional source of environmental service payments.
    In order to efficiently process the enrollment of a large number of 
farmers, CCX is engaging cooperatives, groups such as the Kansas 
Coalition for Carbon Management, State Farm Bureaus and insurance 
companies to serve as aggregators. To realize economies of scale, 
offsets are being assembled into 10,000 ton batches. We hope that 
several Kansas-based organizations will provide this service, thus 
helping grow the institutional capacity needed to eventually make the 
carbon credit markets an additional income source for farmers 
throughout the U.S.

Challenges and Opportunities
    As you might imagine, introducing a new market raises numerous 
technical, legal and educational challenges. CCX has reached out to 
individual farmers, farm groups and potential aggregators to prepare 
the institutional components of a market that allow farmers to realize 
market benefits. While we have built a simplified system for 
agricultural carbon crediting, we will have the opportunity to gather 
large amounts of technical and market data in conducting the pilot 
market.
    In order to maximize the learning value from the pilot, we would 
like to begin using the best available technologies, such as global 
positioning systems for mapping participating fields and new laser-
based systems for testing soil carbon. At the same time, we hope to 
involve a large number and variety of aggregators, universities, 
Resource Conservation and Development Districts and other existing 
experts.
    Our ability to leverage the Chicago Climate Exchange to maximize 
the learning and technical advances would be enhanced if we are able to 
immediately deploy additional financial resources, and we have had 
initial discussions with NRCS on this matter. The nature of that 
discussion is consistent with the concepts advanced by the Conservation 
Innovation Grants provision included in the most recent Farm Bill.
    Among our efforts to boost the long-term prospects for realizing 
value from registered carbon credits, CCX will register all emission 
reductions and mitigation projects with U.S. Department of Energy 
voluntary reporting database. By incorporating agricultural carbon 
credits in a voluntary pilot market from the outset, the Chicago 
Climate Exchange is the world's first large-scale program that offers 
farmers the opportunity to profit from both above-and below-ground 
``crops''.
    Thank you again for the opportunity to participate in this panel.

                              Attachment 1
                   Chicago Climate Exchange Members 
                          (as of June 4, 2003)
Automotive
Ford Motor Company

Commercial Real Estate
Equity Office Properties Trust

Electric Power Generation
American Electric Power
Manitoba Hydro

Electronics
Motorola, Inc.

Forest Products Companies
International Paper
MeadWestvaco Corp.
Temple-Inland Inc.
Stora Enso North America

Chemicals
DuPont

Environmental Services
Waste Management, Inc.

Pharmaceuticals
Baxter International Inc.

Semiconductors
STMicrolelectronics

Municipalities
City of Chicago

Steel
Roanoke Electric Steel Corp


                              Attachment 2
          Chicago Climate Exchange Design Phase Advisory Board
                           Honorary Chairman 
         The Honorable Richard M. Daley, Mayor, City of Chicago
    Warren Batts, former CEO, Tupperware Corporation, Mead.

    David Boren, President, University of Oklahoma; former Oklahoma 
governor and U.S. Senator

    Ernst Brugger, President, Brugger, Hanser & Partner

    Paula DiPerna, former President of the Joyce Foundation

    Elizabeth Dowdeswell, former Executive Director, UN Environment 
Program

    Jeffrey Garten, Dean, Yale School of Management

    Lucien Bronicki, Chairman, ORMAT International

    Donald Jacobs, Dean Emeritus, Kellogg Graduate School, Northwestern 
University

    Jonathan Lash, President, World Resources Institute

    Joseph Kennedy II, Chairman, Citizens Energy Group; former U.S. 
Representative (MA)

    Israel Klabin, President, Brazilian Foundation for Sustainable 
Development

    Bill Kurtis, Journalist and television producer

    Thomas Lovejoy, President, Heinz Center; former Chief Biodiversity 
Advisor World Bank

    David Moran, President, Dow Jones Indexes

    R.K. Pachauri, Chairman, Intergovernmental Panel on Climate Change

    Michael Polsky, President and CEO of Invenergy

    Les Rosenthal, former Chairman, Chicago Board of Trade

    Donna Redel, former Executive Director, World Economic Forum

    Maurice Strong, former United Nations Under-Secretary General

    James Thompson, Chairman, Winston & Strawn; former four-term 
Governor of Illinois

    Sir Brian Williamson, Chairman, London International Financial 
Futures Exchange

    Robert Wilmouth, President and CEO, National Futures Association

    Klaus Woltron, Austrian entrepreneur and Vice President of the 
Vienna Club

    Michael Zammit Cutajar, former Executive Secretary, UN Framework 
Convention on Climate Change


                              Attachment 3
                           Selected articles
  1.  ``Companies Vow to Cut Emissions, Create Exchange to Trade 
        Permits'' Wall Street Journal, Friday, January 17, 2003. Go to 
        http://online.wsj.com/article/SB104276695684121184.html

  2.  ``Heroes: Richard Sandor: His Market Is a Gas'' Time, August 26, 
        2002. Go to http://www.time.com/time/magazine/article/
        0,9171,1003138,00.html

  3.  ``Exchange in pollution credits formed'' Chicago Sun-Times, 
        January 17, 2003

  4.  ``Got Gas: Carbon dioxide-gobbling trees are one way to stay 
        ahead of government regulators'' Forbes, March 17, 2003. Go to 
        http://www.forbes.com/forbes/2003/0317/056.html

    Senator Brownback. No problem. Thank you very much. It is 
exciting, and I will look forward to those announcements next 
week, as well.
    Mr. Ted Hartsig, delighted to have you here, and the 
microphone is yours.

  STATEMENT OF THEODORE A. HARTSIG, C.P.S.SC., SENIOR PROGRAM 
               MANAGER/SOIL SCIENTIST, SES, INC.

    Mr. Hartsig. Thank you, Senator.
    My name is Ted Hartsig. I am a certified professional soil 
scientist with SES Inc. We are out of Lenexa, Kansas, a very 
proud Kansas firm. And we specialize in environmental and 
natural resource management, with particular emphasis in 
agriculture. Our staff have been involved with, very involved 
with, and integral in the development of verification 
procedures and polices in environmental management and 
agriculture, since our inception, about 5 years ago.
    The role of carbon sequestration in soils as a means of 
reducing atmospheric greenhouse gases--specifically, carbon 
dioxide--has been established in the scientific literature, 
position papers by scientific organizations, and in testimony 
for this field hearing. There are many ways in which carbon is 
sequestered, which you have heard about many of them. And 
ultimately, they all involve photosynthetic conversion of 
carbon dioxide into biomass.
    The processes include, as we have discussed, no-till 
farming practices, agro-forestry, wetland conversion, 
conversion of marginal land to prairie. There is quite a myriad 
of opportunities and procedures in which we can enhance--and I 
underscore ``enhance''--carbon-dioxide uptake and 
sequestration. In the United States, as you have also said, our 
vast expanse of open lands creates tremendous opportunities for 
enhancing the sequestration of atmospheric carbon dioxide into 
soils.
    As our country is preparing to enter into a new program of 
trading carbon-emission reduction credits, or carbon credits, 
carbon sequestration in soils is considered one of--the key 
strategy in developing and trading these credits. And because 
of this, great opportunities exist for people who manage the 
land--farmers, foresters, ranchers, and other landowners--to 
benefit from practical environmental conservation practices 
that will aid in reducing greenhouse gases through economic 
incentives. Industries that emit greenhouse gases will also 
benefit from this economically viable system in which they can 
maintain production while working to reduce the amount of 
carbon dioxide through the purchase of carbon credits.
    The private sector has taken the lead in developing the 
market-based system for trading carbon-emission credits, as you 
just heard from Dr. Walsh. For example, the Chicago Climate 
Exchange has been in the forefront in promoting these programs 
and establishing commitments from some of America's largest 
companies.
    The carbon-trading systems that emerged this year, however, 
are not without critics, not without doubters. Therefore, the 
validity of the security of carbon-trading programs must be 
ensured through sound verification systems that are accepted by 
industry, Government, scientists, and the public. Verification 
is the means by which all parties can examine the results of 
enhanced carbon sequestration projects to determine that carbon 
credits are valid, measurable units that are reducing 
greenhouse gases in the atmosphere. The trading programs, 
themselves, are inherently dependent upon verification to 
provide financial security for the buyers of these credits and 
the credibility for the regulatory bodies that will govern the 
trading system.
    Research and development of verification technology and 
protocols is ongoing and will require continual attention. 
Standards and protocols currently exist that can be implemented 
to conduct verification of soil carbon sequestration. These 
standards and protocols will be refined as the technology and 
science evolves to more accurately measure changes in soil 
carbon and to quantify sequestration of that atmospheric carbon 
dioxide.
    Currently, our tools include utilization of remote sensing, 
through the use of multi-spectral satellite data and aerial 
photography, computerized geographic information systems to 
track the locations and quantities of land being used to 
sequester carbon, and computer-based models to calculate how 
much CO2 is utilized in the production of various 
plant biomass and carbon buildup in the soil.
    Field analytical techniques, such as Dr. Rice had 
mentioned, the laser-induced breakdown spectrometry 
instrumentation, will provide rapid means of accurately 
measuring soil carbon changes, and, therefore, much more 
accurate, reliable, and repeatable means to verify carbon 
sequestration in soils. We, in the private-sector companies, 
such as ours, look forward to working with academia, such as 
Dr. Rice, and with the Government to implement these systems.
    To give verification results credibility, verification must 
be conducted by independent third-party professionals with the 
training and knowledge to assess carbon sequestration practices 
and changes in soil carbon content. Independent verifiers must 
not have any political or financial stake in the parties who 
will develop carbon-emission credits, including farmers, 
ranchers, foresters, or other landowners, or associations that 
represent these people, or parties that will aggregate credits 
for markets. To do so would introduce the suspicion of bias and 
obscure the transparency needed for assuring that those that 
purchase carbon credits have truly met their commitment for 
meeting greenhouse-gas reductions.
    For the carbon-trading programs to work, sound verification 
is essential and necessary. Programs around the world will 
critically examine what the United States is doing to 
voluntarily reduce greenhouse-gas emissions, and they will rely 
on the results of verification to provide their conclusions.
    The private-sector of American commerce has the initiative 
and the ability to develop and implement a common and 
consistent standard and practice for verification of carbon 
sequestration. It is the responsiveness of the private sector 
that can establish an accepted scientifically valid 
verification program to meet the pending timetable of program 
implementation, such as with the Chicago Climate Exchange. This 
is, by nature, a process that will involve scientists and 
Government regulators, as well as industry professionals in 
agriculture, forestry, and natural resources management. These 
stakeholders will need to agree upon a common set of standards 
and procedures for verification and for the training and 
certification of the professionals that will verify these 
credits. The private sector has great experience in responding 
to recognized needs for industry verification and for 
developing similar standards and procedures.
    In conclusion, sound, scientifically based verification 
practices will enable carbon emission-reduction credit trading 
to withstand scrutiny and challenges to productive and 
voluntary programs for environmental improvement and 
sustainability. Verification will also identify and expel 
faulty claims of carbon sequestration, including overstating 
claims of contract acreage, nonperformance of accepted and 
agreed-upon agricultural practices, an excess of leakage of 
carbon dioxide from their practices.
    By verifying and validating carbon sequestration practices 
and, therefore, providing a warranty of carbon-emission 
credits, the United States Carbon Trading Program will attain 
national acceptance and international recognition.
    Thank you, Senator, for allowing us to testify today.
    [The prepared statement of Mr. Hartsig follows:]

 Prepared Statement of Theodore A. Hartsig, C.P.S.Sc., Senior Program 
                   Manager/Soil Scientist, SES, Inc.

          ``Verification Needs for Soil Carbon Sequestration''

    The role of carbon sequestration in soils as a means of reducing 
atmospheric greenhouse gasses, specifically, carbon dioxide, has been 
established in the scientific literature, position papers by scientific 
organizations, and in testimony for this field hearing. There are many 
ways in which carbon is sequestered as a permanent component of soils 
in the United States, all of which involve, ultimately, photosynthetic 
conversion of carbon dioxide into plant biomass which, through 
degradation, will become part of the soil matrix. The processes include 
many anthropogenic practices that will be implemented to enhance carbon 
dioxide uptake and increase the amount of carbon in the soil, creating 
an integral and very important basis of reducing greenhouse gasses in 
the atmosphere. These practices include the implementation of no-till 
and conservation tillage farming practices, conversion of marginally-
used lands to grasslands, recreation and/or restoration of wetlands, 
and reclamation of mined lands. In the United States, our vast expanse 
of open lands creates tremendous opportunities for enhancing the 
sequestration of atmospheric carbon dioxide in soils.
    As our country is preparing to enter into a new program of trading 
carbon emission reduction credits, carbon sequestration in soils is 
considered one of the key strategies of developing and trading these 
credits. Because of this, a great opportunity exists for people who 
manage the land--farmers, foresters, ranchers, and other land owners--
to benefit from practical environmental conservation practices that 
will aid in reducing greenhouse gasses through economic incentives. 
Industries that emit greenhouse gasses will also benefit from an 
economically viable system in which they can maintain production while 
working to reduce the amount of carbon dioxide in the atmosphere 
through purchase of carbon credits.
    The carbon trading systems that will emerge this year are not 
without critics and doubters. Therefore, the validity and the security 
of the carbon trading programs must be ensured through sound 
verification systems that are accepted by industry, the government, 
scientists, and the public. Verification is the means by which all 
parties can examine the results of enhanced carbon sequestration 
projects to determine that carbon credits are valid, measurable units 
that are reducing greenhouse gasses in the atmosphere. The trading 
programs themselves are inherently dependent upon verification to 
provide financial security for the buyers of these credits, and 
credibility the regulatory bodies that will govern the trading system.
    Research and development of verification technology and protocols 
is ongoing and will require continual attention. Standards and 
protocols currently exist that can be implemented to conduct 
verification of soil carbon sequestration. These standards and 
protocols will be refined as the technology and science evolves to more 
accurately measure changes in soil carbon and quantify sequestration of 
atmospheric carbon dioxide. Currently, our tools include the 
utilization of remote sensing through the use of multi-spectral 
satellite data and aerial photography, computerized geographic 
information systems to track the locations and quantities of land being 
used to sequester carbon, and computer-based models to calculate how 
much carbon dioxide is utilized in the production of various plant 
biomass and rates of carbon buildup in the soil. Field analytical 
techniques, including Laser-Induced Breakdown Spectrometry (LIBS) 
instrumentation, will provide rapid means of accurately measuring soil 
carbon changes, and therefore more accurate, reliable, and repeatable 
means to verify carbon sequestration in soils.
    To give verification results credibility, verification must be 
conducted by independent, third party professionals with the training 
and knowledge to assess carbon sequestration practices and changes in 
soil carbon content. Independent verifiers must not have any financial 
stake in parties who will develop carbon emission reduction credits, 
including farmers, ranchers, foresters or other landowners, 
associations that represent those that produce the credits, or parties 
that will aggregate credits for the markets. To do so would introduce 
the suspicion of bias and obscure the transparency needed for assuring 
that those that purchase carbon credits have truly met their commitment 
for meeting greenhouse gas reductions. For the United States Carbon 
Trading Program to work, sound verification is essential and necessary. 
Programs around the world will critically examine what the United 
States is doing to voluntarily reduce greenhouse gas emissions and they 
will rely on the results of verification to provide their conclusions.
    The private sector of American commerce has the initiative and 
ability to develop and implement a common standard and practice for 
verification of carbon sequestration. It is the responsiveness of the 
private sector that can establish an accepted, scientifically-valid 
verification program to meet the pending timetable of program 
implementation. This is by nature a process that will involve 
scientists and government regulators, as well as industry professionals 
in agriculture, forestry, and natural resources management. These 
stakeholders will need to agree to a common set of standards and 
procedures for verification, and for the training and certification of 
the professionals that will verify these credits. The private sector 
has great experience in responding to recognized needs for industry 
verification and for developing similar standards and procedures. 
Examples of these standards and procedures include environmental 
management, animal production, and natural resources monitoring and 
measurement strategies that are statistically and scientifically sound.
    In conclusion, sound, scientifically-based verification practices 
will enable carbon emission reduction credit trading to withstand 
scrutiny and challenges from those that seek to discredit a productive 
and voluntary program for environmental improvement and sustainability. 
Verification will also identify and expel those who seek to cheat the 
system through faulty claims of carbon sequestration, including 
overstating claims of contracted acreage, non-performance of accepted 
and agreed-upon agricultural practices, and excessive ``leakage'' of 
carbon dioxide from their practices. By verifying and validating carbon 
sequestration practices, and therefore providing a warranty of carbon 
emission reduction credits, the United States carbon trading program 
will attain national acceptance and international recognition.

    Senator Brownback. Thank you, Mr. Hartsig, and I look 
forward to some questions in our discussion.
    Ms. Melissa Carey--she is the Climate Change Policy 
Specialist with Environmental Defense--delighted to have you 
here. Welcome to Kansas. Many happy returns.

 STATEMENT OF MELISSA CAREY, CLIMATE CHANGE POLICY SPECIALIST, 
                     ENVIRONMENTAL DEFENSE

    Ms. Carey. Good afternoon. Thanks for having me. And thanks 
for inviting us to speak here today.
    Senator Brownback. Sure.
    Ms. Carey. It was really fun to speak at the forum next 
door, earlier today, and see the amount of enthusiasm and 
energy that Kansans have for this subject. It was particularly 
refreshing to leave Washington and come to such an enthusiastic 
reception here in Kansas.
    Senator Brownback. And where the skies are not cloudy all 
day.
    [Laughter.]
    Ms. Carey. Indeed. So thank you very much.
    Mr. Chairman, my name is Melissa Carey, and I am a Climate 
Change Policy Specialist at Environmental Defense. We are a 
300,000-member national nonprofit organization, based in New 
York.
    Since 1967, we have linked science, economics, and law to 
create innovative, equitable, and cost-effective solutions to 
the most serious environmental problems we face.
    It is really exciting to see so many interested people here 
to learn more about carbon sequestration. And I think it really 
speaks to the potential for this tool to bring about real 
benefits to rural communities while delivering critically 
needed environmental protections. And thanks, again, for making 
this opportunity possible.
    Environmental Defense sees global warming as the gravest 
environmental threat we face. It is a big problem. It is a 
complex problem. But it is also a problem that can be beaten. 
Throughout our history, American ingenuity has enabled our 
Nation to triumphs over adversity. We do not shrink from 
challenges. This is especially true in America's rural 
communities, where the demand for creativity and innovation is 
constant.
    Our agricultural producers are world leaders, and for very 
good reason. They know how to get the job done. They know how 
to react to changing market conditions. They know how to manage 
risks. And they know how to recognize opportunity when they see 
it. Therefore, it is not that surprising that America's 
farmers, ranchers, and foresters are leading the way on global-
warming solutions. They are seeing the future, anticipating 
change, and using their own initiative and ingenuity to shape 
our national response to this threat.
    At Environmental Defense, our motto is ``Finding the Ways 
That Work.'' At our core, we are committed to seeking new and 
creative ways to forge lasting solutions to difficult 
environmental challenges.
    On global warming, we have made a core commitment to 
working for and with agricultural communities, leveraging rural 
America's enormous potential to bring out positive change for 
the health of our climate, while producing tangible and needed 
economic benefits in the communities that are delivering 
innovation. To this end, we have launched a multi-year National 
Sinks Initiative, designed to help farmers, ranchers, and 
foresters make the connections to markets that will deliver the 
economic and environmental benefits we know are possible. And 
this is detailed a lot more in my written testimony, and I will 
look forward to talking about it with you more in detail 
hopefully during your questions.
    I will say that, on an initiative like this, we really 
cannot succeed without partners. And Environmental Defense is 
definitely working with the best. In different regions of the 
country and with diverse operations, we are working with people 
who are really leading the way on carbon sequestration.
    These partnerships are already yielding strong results. In 
2002, the Pacific Northwest Direct Seed Association, which 
represents 300 farmers in three States--Washington, Idaho, and 
Oregon--they own, collectively, about half a million acres--
joined with Entergy, a Louisiana-based energy company, to 
promote direct seeding, a practice which enhances soil carbon 
sequestration and provides a host of other environmental 
benefits, such as improved soil productivity, reduced erosion, 
and better wildlife habitat.
    In this partnership, which was brokered by Environmental 
Defense, Entergy will lease 30,000 tons of sequestered carbon 
over a 10-year period from the participating landowners, and 
there are about a hundred of them.
    In addition to the carbon benefits seen by the atmosphere, 
the lands affected by the project will contribute less run-off 
to nearby waterways, helping to improve the habitat for 
critical steelhead and salmon runs in the Pacific Northwest. 
This is a huge additional environmental benefit.
    The initiative exhibited by the farmers at PNDSA is a sort 
of energy that is really, truly changing the way that we look 
at global-warming policy. And make no mistake, things are 
definitely changing.
    Today, the carbon market is quite small, and it is 
speculative in nature. Companies are certainly buying, but in 
small quantities and in fairly limited transactions. In truth, 
their motives are as much anticipatory as anything else. They 
know, as we do, that it is only a matter of time before the 
United States establishes a true national market for 
greenhouse-gas emission reductions. There are some wonderful 
voluntary efforts out there, underway today; and they are, in 
our view, a lead-up to this more comprehensive national market. 
But because we do not have that national market yet, today's 
carbon market is really defined by transactions that allow 
learning by doing. And this applies to both the buyers and the 
sellers out there today.
    The learning period, of course, will not last forever, 
because markets have proven to be the only way we have found to 
generate large environmental benefits at least-cost. And these 
are certainly essential qualities of an effective global-
warming policy.
    A change is on the horizon, and positive things are 
happening. Building on the groundwork laid by you and others, 
this year, for the first time, a bipartisan bill has been 
introduced that would establish a nationwide market for 
sequestered carbon and other forms of emission reductions. This 
is S. 139, the Climate Stewardship Act, and it was introduced 
early this year by Senators John McCain and Joseph Lieberman. 
The bill would place a nationwide limit on global-warming 
pollution and allow farmers to sell sequestered carbon to 
companies that are over the limits established by the bill. 
This is the first time many legislators have proposed such an 
economy-wide approach, and we believe that it holds great 
promise for rural communities.
    Just to sum up, Environmental Defense is very proud to be 
working with farmers and foresters to make changes to our 
atmospheric impacts--not only possible, but positive, for 
everyone involved.
    Thank you, again, for allowing me to speak with you today, 
and I look forward to answering any questions you may have.
    [The prepared statement of Ms. Carey follows:]

Prepared Statement of Melissa Carey, Climate Change Policy Specialist, 
                         Environmental Defense

``Biological Carbon Sequestration: Innovation in the Race to Slow 
        Global Warming''
Introduction
    Mr. Chairman and Members of the Subcommittee, my name is Melissa 
Carey and I am a Climate Change Policy Specialist at Environmental 
Defense, a national nonprofit organization based in New York, 
representing more than 300,000 members. Since 1967 we have linked 
science, economics and law to create innovative, equitable and cost-
effective solutions to the most serious environmental problems.
    I appreciate the opportunity to testify here today on what 
Environmental Defense considers one of the most promising opportunities 
available to fight the major environmental issue of our lifetime--
global warming. I am very pleased to be able to share our thoughts on 
how you and your fellow policymakers may take advantage of this 
important tool to create that rarest of outcomes--a real solution that 
both effectively addresses the problem and is beneficial to landowners 
and the broader environment.
    I'm particularly grateful to have this opportunity to speak here in 
this subcommittee, with members who were among the very first 
policymakers to grasp the potential of this tool. You are responsible 
for pioneering effort to allow farmers and foresters to fully realize 
the potential of carbon sequestration to improve the environment and 
their operations simultaneously. We appreciate your leadership. As you 
have seen, global warming is a big problem, but its worst effects can 
be prevented. We know that Americans are up to the challenge. Our 
country has never run short on innovation, and today, on the issue of 
global warming, America's heartland is leading the way.
    In my testimony today I would like to explain why Environmental 
Defense has made carbon sequestration a priority initiative. I would 
also like to outline the nature of our recent activities to promote 
this important tool. Finally, I'll go over what we believe to be the 
potential for landowners to benefit from sound incentives for carbon 
sequestration, and what we see as the basic requirements of such a 
policy.
Carbon Sequestration: The right tool for an important job
    Scientists have made it clear that while much remains to be learned 
about our future under global warming, the phenomenon is dangerous and 
it is under way. Though some would emphasize the views of a small 
minority of scientists, the debate on the existence of global warming 
is truly over. It effectively ended in June 2001, when the National 
Academy of Sciences, at the request of the current administration, 
analyzed two decades of research and confirmed that climate change is a 
real phenomenon caused by human activities. The report affirms the 
basic facts starkly: ``Greenhouse gases are accumulating in Earth's 
atmosphere as a result of human activities, causing surface air 
temperatures and subsurface ocean temperatures to rise. Temperatures 
are, in fact, rising.'' \1\
---------------------------------------------------------------------------
    \1\ National Academy of Sciences. Climate Change Science: An 
analysis of some key questions. National Academy Press. Washington, 
D.C. 2001.
---------------------------------------------------------------------------
    It is ironic that a problem of such complexity commands such a 
simple solution: ultimately, preserving our environment for future 
generations requires us to halt the steady upward climb of global 
warming pollution. Whether through decreases in emissions of heat 
trapping gases or sequestration and storage of those gases here on the 
ground, we must embrace methods of reducing our ``atmospheric 
footprint'' if we are to avoid dangerous global warming.
    Every day, in many different ways, Americans are encouraged to 
think ``outside the box'' to create solutions to the problems we seek 
to remedy. This is a long tradition; over our history, Americans have 
proven our capacity to innovate and create in the face of challenges. 
We're known for our ability to see untapped potential and craft 
farsighted solutions well ahead of the competition. Things are no 
different here. The interaction between land and the atmosphere is 
often under appreciated, and American farmers and foresters are 
beginning to see the potential of this underused tool to change the 
climate change equation. Once again, American ingenuity is taking hold.
Farms and forests make a difference
    Though much of the global warming trend is attributable to fossil 
fuel emissions, at a global level land-use change and deforestation 
also emit significant greenhouse gases that contribute to global 
warming. Figure 1 shows the contribution of deforestation and other 
forms of land use to worldwide global warming pollution.
Figure 1.



        Source: IPCC. 2000. Land Use, Land Use Change, and Forestry: A 
        Special Report of the IPCC. Cambridge University Press, 
        Cambridge, UK, and U.S. Department of Energy, Energy 
        Information Administration (USDOE). 1999. International Energy 
        Annual.

    While the energy and industrial sectors burn fossil fuels that 
release heat-trapping greenhouse gases, the land use sector is unique 
in that it can serve to both increase and decrease atmospheric 
greenhouse gas concentrations. While deforestation and other land uses 
make our ``atmospheric footprint'' heavier, improvements in the 
management of forests and farmlands can significantly offset the growth 
of heat trapping gases in Earth's atmosphere--whether these gases 
result from fossil fuel combustion, deforestation, or any other source. 
Like forests, croplands and grasslands can contribute greenhouse gas 
emissions to the atmosphere--or remove those emissions--depending upon 
how they are managed. Clearing and plowing land, for example, releases 
heat-trapping carbon dioxide by exposing soils to air and sunlight. On 
the other hand, practices such as conservation tillage, grassland 
restoration and use of cover crops enhance carbon storage in 
agricultural soils. Some of these practices also reduce direct GHG 
emissions from reduced use of inputs such as fuels and fertilizers. 
Used in this manner, agricultural lands can act as natural carbon 
storehouses, or ``carbon sinks,'' delivering benefits to the atmosphere 
as well as to the local environment. These additional benefits, which 
include protection of open space, air and water quality improvements, 
and protection of vital wildlife habitat, provide a an another powerful 
incentive for landowners to pursue land use practices that benefit the 
atmosphere.

U.S. Lands: Important potential
    Despite intensive clearing of native forests and grasslands during 
the 18th and 19th centuries, natural storehouses of carbon have 
substantially rebounded. As a result, today, the U.S. land base is a 
sizeable net carbon sink.\2\ As shown in Figure 2, the Environmental 
Protection Agency estimates that lands in the United States annually 
offset over 900 million metric tons of carbon equivalent. This is 
equivalent to approximately 13 percent of total U.S. 
CO2 emissions caused by the combustion of fossil fuels.\3\ 
Other scientists have estimated an even larger role for carbon sinks in 
the United States.\4\ Though estimates may differ somewhat, it is clear 
that even a modest expansion of the existing U.S. sink could 
substantially boost efforts to curb greenhouse gas emissions.
---------------------------------------------------------------------------
    \2\ Caspersen, J., Pacala, S., Jenkins, J., Hurtt, G., Moorcroft, 
P. & Birdsey, R. 2000. Contributions of land-use history to carbon 
accumulation in U.S. forests. Science 290, 1148-1151.
    \3\ U.S. Environmental Protection Agency (USEPA). 2002. Inventory 
of U.S. greenhouse gas emissions and sinks: 1990-2000. Washington, D.C.
    \4\ See, for example, Pacala, S., et al., 2001. Consistent land-and 
atmosphere-based U.S. carbon sink estimates. Science 292, 2316-2320.
---------------------------------------------------------------------------
Figure 2.



        Source: U.S. Environmental Protection Agency (USEPA). 2002. 
        Inventory of U.S. greenhouse gas emissions and sinks: 1990-
        2000. Washington, D.C.

Carbon sequestration as a bridge
    Biological carbon sequestration alone will not provide the 
reductions needed to stabilize atmospheric greenhouse-gas 
concentrations at a safe level. As Figure 1 makes clear, the majority 
of reductions in global warming pollution must come from economic 
sectors that burn fossil fuels. During the coming decades, however, 
carbon sequestration can play a crucial role in efforts to slow climate 
change by helping to jump-start actions to stabilize atmospheric 
concentrations of greenhouse gases and buy needed time to develop 
technologies to reduce CO2 emissions from energy use. As 
such, carbon sequestration can act as a ``bridge'' to a sustainable 
energy future while providing substantial economic benefits to 
landowners and substantial ancillary benefits to the terrestrial 
environment.
    Environmental Defense believes that this bridge can be built, but 
only with substantial participation from the Nation's farmers and 
foresters. Widespread engagement in carbon-sequestering practices will 
only be realized through a system that provides sufficient economic 
incentives to landowners who can make carbon another commodity produced 
by their lands. We believe that biological carbon sequestration will be 
most effective if integrated into a cap-and-trade program that uses 
markets to deliver economic and environmental benefits. Such a program 
would allow businesses to offset their greenhouse-gas emissions by 
purchasing credits from landowners who increase carbon sequestration in 
forests and agricultural lands.

A Proven Tool: Markets work for landowners and the environment
    Past experience with cap and trade--a tool that was developed, 
tested, and proven here in the United States--has shown that markets 
deliver unprecedented environmental results at unmatched cost 
efficiency. In 1990, Congress amended the Clean Air Act, establishing a 
cap-and-trade program to regulate power plant emissions of sulfur 
dioxide (SO2), a precursor to acid rain. The acid rain 
program places an absolute limit, or cap, on industry-wide 
SO2 emissions and allows electric utilities flexibility in 
how they meet their individual emissions caps. Companies either can 
reduce emissions from their own plants using the technology of their 
choice or they can strike a deal: a company that is unable to reduce 
its own emissions enough to comply with its cap can purchase 
``surplus'' reductions--in the form of ``allowances,'' or credits--from 
another company that was able to reduce its emissions even lower than 
its cap. Companies are free to seek out the most cost-effective means 
to meet their cap. Failure to meet the cap results in significant 
financial penalties.
    The results of this program have been spectacular: the acid rain 
program has seen 100 percent compliance, and SO2 emissions 
have been reduced far beyond required limits at a fraction of 
previously projected costs. Interestingly, greenhouse gas emissions are 
even better suited than SO2 to a cap and trade program. 
SO2 emissions cause impacts only downwind from the source. 
Global warming, by contrast, is the result of the cumulative release of 
greenhouse gases, particularly CO2, worldwide. Therefore, a 
decrease in CO2 emissions anywhere on the Earth will result 
in a global-level reduction of greenhouse gases. This characteristic of 
greenhouse gases makes them extremely well suited to a cap-and-trade 
program, as emitters can search an unlimited geographical area to find 
cost-effective emissions reductions and carbon sequestration 
opportunities.
    Carbon sequestration can be fully integrated into a cap-and-trade 
program, providing an immediate and low-cost option in a greenhouse-
gas-reduction strategy. Regulations that cap greenhouse-gas emissions 
can grant industries the option of offsetting emissions by purchasing 
carbon sequestration credits from landowners who increase carbon 
storage in forests and agricultural lands. A market that allows carbon 
sequestration offsets will reduce the cost of compliance and the 
savings will, in turn, allow deeper and more rapid cuts in emissions 
than would otherwise be possible. This is a positive feedback loop that 
generates continuing benefits for the atmosphere, rural communities, 
and the surrounding environment.

Environmental Defense's National Sinks Initiative
    Environmental Defense has made an organizational commitment to 
tapping this latent potential in our farms and forests. In 2003, 
Environmental Defense launched our National Sinks Initiative, multi-
year effort to demonstrate emerging opportunities for land owners and 
managers to benefit economically from participation in solutions to 
global warming. Key activities include regional demonstration projects, 
on-site studies and reports, educational initiatives, transactions of 
greenhouse gas (GHG) emission reduction and carbon sink credits, and 
policy applications of these project experiences. Environmental Defense 
is working with farmers and foresters on several fronts to assure that 
actionable and economically attractive crediting options for landowners 
play a pivotal role in American climate protection policies.

Demonstration projects
    Over the next two years, our Sinks Initiative is placing a major 
emphasis on the creation of cooperative projects demonstrating benefits 
to both the landowner and the atmosphere from adoption of improved land 
management practices. Through carbon sequestration and direct GHG 
emissions reductions, land managers can improve their bottom line 
through increased productivity and through the sale of carbon and GHG 
offset credits to energy-intensive industries aiming to limit their GHG 
emissions. Environmental Defense is working with farmers and ranchers 
in a number of regions of the U.S. to demonstrate how GHG offset 
crediting can work in a variety of settings, and how supportive state 
and Federal policies can be implemented.

Model transactions
    An early success in our sinks initiative is a transaction between a 
group of Pacific Northwest farmers and Entergy, the Louisiana-based 
energy company. In Washington state, the Pacific Northwest Direct Seed 
Association, representing 300 farmers owning 500,000 acres, has joined 
with Entergy to promote direct seeding, a practice which enhances soil 
carbon sequestration and which provides a host of other benefits such 
as improved soil productivity, reduced erosion, and better wildlife 
habitat. In this partnership, which was brokered by Environmental 
Defense, Entergy will lease 30,000 tons of carbon offsets over a ten 
year period from participating landowners. In addition to the carbon 
benefits seen by the atmosphere, the lands affected by the project will 
contribute less runoff to nearby waterways, helping to improve the 
habitat for critical steelhead and salmon runs. The attached article 
from the journal Top Producer gives further details on this project. It 
is the type of success we wish to replicate in through further work 
with the agricultural community.

Setting high standards
    Environmental Defense's work aims not only to demonstrate that 
certain practices can increase the uptake of carbon by soils and 
forest, but also that the uptake can be reliably quantified and 
credibly integrated into GHG emissions control programs and policies. 
Ultimately, we are confident that carbon sequestration will be included 
as a means of compliance under a national emissions policy. To ensure 
the soundness of such an approach as well as its acceptance by the 
science community, the policy community and the general public requires 
that a number of technical issues be addressed and resolved. 
Environmental Defense is working with scientists and practitioners to 
pinpoint those issues and test various possible solutions, ultimately 
determining the highest possible standards for carbon sequestration 
projects.

Partnerships: Critical ground-truthing
    In coordination with project work, Environmental Defense will 
partner with the local-level organizations that are best positioned to 
offer practical, real-time insights on the experiences of landowners 
and land managers as they participate in carbon-sequestering 
activities. In January 2003 Environmental Defense and the National 
Association of Conservation Districts formalized an agreement to 
cooperate on innovative ways for agriculture to produce greenhouse gas 
reduction credits to enhance income in rural American and help slow 
global warming. The joint effort of the NACD and Environmental Defense 
is an unusual and important alliance, and embodies the spirit in which 
we are pursuing our outreach to the agricultural community.

Policymakers respond: Future opportunities for farmers and foresters
    As farmers and foresters become more familiar with their potential 
to make a positive contribution to global warming solutions, 
policymakers across the country are responding. Significantly, U.S. 
Senators John McCain (R-AZ) and Joseph Lieberman (D-CT) have introduced 
the Climate Stewardship Act (S.139), a bipartisan, comprehensive 
proposal to establish a national market for greenhouse gas emission 
reductions. Under the Climate Stewardship Act, farmers and foresters 
are not regulated, but may elect to undertake carbon-sequestering 
activities and enter the national carbon market as sellers of low-cost 
carbon sequestration offsets. Environmental Defense strongly supports 
this legislation; in our view, it represents the most thorough and 
complete proposal to create the sort of market that will provide real 
benefits to farmers, foresters, and the environment.
    Policymakers are leading outside of Washington as well. states in 
all regions of the country have begun to engage in climate policy, and 
particularly in actions to promote carbon sequestration. Actions 
ranging from simple study provisions to full-scale cap and trade 
programs have been proposed and in most cases approved in the state 
legislatures of California, Connecticut, Hawaii, Idaho, Illinois, Iowa, 
Louisiana, Massachusetts, Minnesota, Nebraska, New Hampshire, North 
Dakota Oklahoma, Oregon, South Dakota, Washington, and Wyoming. Other 
activities, including scientific study and project development, are 
proceeding independently in states that have not yet enacted formal 
programs to promote carbon sequestration. In these cases, farmers and 
foresters are acting first, reflecting their independent interest in 
this innovative tool. The excellent work of the Consortium for 
Agricultural Soils Mitigation of Greenhouse Gases, headed by Dr. 
Charles Rice here at Kansas State, is a good example of this type of 
activity, as are the activities of the Kansas Coalition for Carbon 
Management.
    Activities are also proceeding beyond our borders. At the 
international level, a market in greenhouse-gas-emissions-reduction 
credits is already emerging. Significant market activity is occurring 
in Europe, where many nations have adopted national emissions caps 
pursuant to the Kyoto Protocol and European officials have officially 
endorsed creation of a European market in greenhouse gas emissions 
reductions. And the volume of transactions is growing. Countries and 
companies traded an estimated 12 million metric tons of emissions 
credits in 2001, and transactions totaling 24 million metric tons have 
closed over the first six months of 2002. Some observers have estimated 
that number could rise to 68 million metric tons by the end of 2002.\5\
---------------------------------------------------------------------------
    \5\ World Bank. 2002. ``State and Trends of the Carbon Market(s)''. 
Presentation prepared by Frank Lecocq and Karan Capoor, on the basis of 
material provided by Natsource LLC, CO2e.com LLC, and Point Carbon. 
October 18, 2002.
---------------------------------------------------------------------------
Conclusions
    Environmental Defense commends the leadership of Subcommittee Chair 
Senator Brownback and his colleagues in pursuing the unique 
opportunities that carbon sequestration presents to the agricultural 
and forestry communities. You are truly leaders in this field, and we 
look forward to working with you to make this emerging market a robust 
reality for rural communities nationwide. I am happy to answer any 
questions you may have on any aspect of my testimony. Thank you.

    Senator Brownback. Thank you, Ms. Carey. Thanks for being 
here.
    Dr. Walsh, let me just start with the basics on this for 
the Chicago Climate Exchange, do you have any carbon trades 
with agriculture that are going through the Chicago Climate 
Exchange today? And if so, could you describe those?
    Dr. Walsh. Senator, we are just now finalizing the terms of 
trade. We have taken our high-level rule book and drafted it 
into a multi-hundred-page document that details all this. And 
we are going to have trades this year. But let me take you, 
step by step, through the process here.
    Each individual producer will execute a very simple 
contract, a 4-year commitment. Let us take, as an example, 
continuous no-till on a specified piece of property. That piece 
of property will then be assigned a standardized quantity of 
emission credits, of offsets, and they will be managed by their 
aggregator. For example, if we had a cooperative or a farm 
bureau that becomes a registered aggregator that has certain 
professional qualifications and financial qualifications that 
we are required to have by our Commodity Futures Trading 
Commission exemption, then the producer registers his contract 
with the aggregator. The aggregator provides the exchange a 
summary document. And as we establish that the contracted 
activities are undertaken in the field, then the aggregator 
gets the credits and can sell them in the open market on our 
Internet-based trading platform. And then the aggregator will 
feed back the proceeds to the farmer. And we will have somebody 
from Ted's shop, perhaps, or a subcontract, perhaps somebody 
from an RC&D, in fact, do a field inspection to determine that 
the agreed-on practice took place. And it is at that point 
where we have an opportunity to gain far more information as 
to, you know, what is going on in the field and the other 
technical information we would like to start to accumulate.
    The buyers in the market are these industrial companies--
the Fords, the American Electric Powers, and so on, perhaps the 
DuPont or--who may either be unable to make their reduction 
commitment for 2003, or they anticipate that the reduction 
commitment for 2004, 2005, or 2006 is not going to be something 
they can get to in-house, and they want to buildup a bank of 
allowances, or of offsets.
    Senator Brownback. So if I am a farmer in Kansas, and I 
want to work through the Chicago Climate Exchange, I will sign 
a simple contract, and for 4 years I am going to do this 
particular agricultural practice, a no-till type of operation, 
that is then verified on this number of acres.
    Dr. Walsh. Correct.
    Senator Brownback. And that will go, then, through an 
aggregator that will get a number of acres together. And then 
what you will sell or trade to one of these companies a set of 
carbon credits, over a 4-year time period?
    Dr. Walsh. That is one option, but we--that would be a 
forward deal, Senator. It is going to be a year-by-year, a spot 
market.
    Senator Brownback. So they buy yearly?
    Dr. Walsh. Yes.
    Senator Brownback. American Electric Power buys yearly 
carbon credits?
    Dr. Walsh. That is correct.
    Senator Brownback. This year, somewhere in the United 
States, there are 80 credits of carbon that are in the soil 
that would not otherwise be there.
    Dr. Walsh. That is right. Well, I should note that to keep 
this high level of confidence and to keep it simple and to 
focus on the big place, the delivery territory spreads from 
Central Kansas over to Central Ohio up into Southern Michigan 
and across to Southern Minnesota, so we are really focused on 
the corn-and-bean belt as a starting point, because we have 
good knowledge and good information on the carbon sequestration 
rates for that area. As we get into the Northwest and get into 
the Southeast, it is highly dependent on local conditions. So 
we focused first on the big source of supply.
    Senator Brownback. So your group, in describing the 
geographic area that you did there, the Midwest/Upper Plains 
corn-belt region, you feel quite confident that if you 
contracted a farmer to do this practice on this land in this 
area, we are going to be setting aside this amount carbon. You 
feel like that the science is well-developed to be able to say 
that with certainty to the purchasers.
    Dr. Walsh. With very high confidence. Let me explain how we 
arrived at the standard value we have achieved here. We, first, 
have convened Dr. Rice and a couple of other top soil carbon 
experts at land-grant universities and asked them, if we 
picked, really, the prototype heart of the Midwest location--
and I think we talked about Iowa as heart of the Midwest for 
soil carbon opportunities--and we said, what would be----
    Senator Brownback. We would consider Kansas----
    [Laughter.]
    Dr. Walsh. Oh, absolutely.
    [Laughter.]
    Senator Brownback. I will just register my opinion.
    [Laughter.]
    Dr. Walsh. I would like to be true to the record.
    We said that if we just picked a field that is a very good 
potential field in the Midwest, what could we be confident in 
achieving under a continuous no-till regime? And then we 
employed a traditional capital-markets tool where we give it a 
haircut. We took 15 percent off of that, because we really 
would like to be confident in these numbers.
    Now, if you end up proving to me, Senator, that your land 
has more soil carbon accumulating than our standard value, that 
belongs to you and may ultimately be tradeable. But we wanted 
to be conservative and credible.
    First, we picked the standard value and discounted it. Then 
we asked, ``Where is that standard value applicable?'' And I 
will tell you that Western Kansas is not as conducive to carbon 
accumulation under no-till as Eastern Kansas is. However, we 
also recognized that some of these other practices--grass 
plantings, tree plantings--offer opportunities, and the 
delivery territory for grass plantings includes all of Kansas. 
So you can do grass plantings in much of the Midwest, and you 
can do it in all of Kansas and much of Nebraska, as well, and 
get the specified tonnage per acre per year. Anything above 
that belongs to the farmer. And we would like to start 
measuring that excess so that we get additional credit for the 
grower over time.
    Senator Brownback. Ms. Carey, what do you think of the 
trading system described here by Dr. Walsh because you noted, 
as well, and even in your motto, ``Finding the Ways That 
Work''--I certainly think the way we will work through this is 
through a market--what do you think of what he describes on 
being able to produce carbon credits for a market system the 
way he has described this?
    Ms. Carey. I think, just to start at sort of a high level, 
what Dr. Walsh is describing is a difficult balance between 
accuracy and scale at this point, given the technologies and 
the methodologies we have to accurately measure, monitor, and 
verify carbon. Ideally, in undertaking a carbon sequestration 
project, you would like to be as specific as possible about 
what you are measuring. And certainly, the precision is 
available. It is a matter of at what cost you want to attach to 
it.
    One thing that we have described over and over again to 
some of the doubters who have raised this question is that 
scientists have known how to accurately measure soil carbon, 
for example, for decades. It is something--it is a standard 
scientific practice. The question is, How do you modify 
measurement techniques, for example, that are well-adapted to 
scientific study, and modify them up to be accurate at larger 
scale?
    We are working on something we are referring to internally 
as the ``gold standard.'' We are working with scientists to 
develop the highest possible quality methodologies for 
measuring, monitoring, and verification. And we are testing 
them out in the context of some of the demonstration projects 
we are undertaking that I described in my testimony to, sort 
of, showcase the most advanced methodologies and technologies 
and show that you really can become extremely accurate on a 
project-by-project basis.
    Senator Brownback. You have mentioned your project that you 
have in the Northwest. Now, do you have projects in other 
places around the country, Ms. Carey?
    Ms. Carey. We are working on it. Our National Sinks 
Initiative was actually just started in this calendar year. So 
the process of going out into the field and identifying 
partners and potential projects has just begun. We are 
currently working in a couple of places--Texas is one place, 
Mississippi, Louisiana, New York possibly--and we would like to 
come to Kansas, as well.
    Senator Brownback. Good. Good.
    I want to ask you, Ms. Blackman----
    Ms. Blackman. Yes.
    Senator Brownback.--in Kansas, could you describe some of 
the features of a good sequestration project, what it ought to 
have to make it attractive to producers and buyers? What is the 
model type program in our state for a farmer to engage this 
program?
    Ms. Blackman. The conservation tillage, of course, is part 
of the initial program that we feel would add it, really, to 
their overall carbon-credit product or availability of carbon 
credits within his production.
    You know, one of our greatest concerns in Kansas is that we 
want to be certain that the producer, the ones that are 
sequestering this carbon out here, taking this carbon out of 
the atmosphere, is going to be the one that is going to be 
receiving the benefit of the sale of that carbon credit, 
receiving the biggest percentage within his pocket for the work 
that he is doing on the land, that it is not going to be tied 
up in legalese, if you will, and getting it down to the very 
basic cost, not putting a lot of additional cost into it with 
unnecessary verifications and so forth.
    Our conservation districts, our RC&D councils out here, 
have done a very good job in putting the farm bill programs on 
the ground in Kansas, and that we have got our products is 
proof of that, in our grain and our livestock. And the 
opportunity that we have in our farm bill to increase our 
ability to put good conservation practices on the ground and 
increase the opportunity for carbon credit is certainly going 
to be an advantage.
    I guess I would say that our greatest concern is our 
producers out there, the viability of rural America, rural 
Kansas, through the opportunity that we see in the carbon 
sequestration activities. But I do not know that I have 
answered your question fully--but, you know, I certainly have 
tried. I hope I have, so----
    Senator Brownback. Well, I do not know that it was very 
artfully asked, either.
    Senator Brownback. So I think you--no, I think you hit the 
right issue. I mean, from my perspective, in family farms, the 
program would have to be something that is relatively, I think, 
straightforward in its design, that, OK, here is what you would 
be required to do over this period of time, and here is what 
the payment would be, so that----
    Ms. Blackman. Right.
    Senator Brownback.--you could measure and say, ``Well, OK, 
I'm willing to do these things for that price.'' And ideally, 
what I would like, as a legislator, is to see that money get 
back to rural America, get back to a farmer's pocket, because 
it is a tough financial business. And----
    Ms. Blackman. Right.
    Senator Brownback.--I have said to many people, over a long 
period of time, the farmer really wants to take care of that 
soil. He really wants to care of that land.
    Ms. Blackman. Exactly.
    Senator Brownback. But it has to be economically viable, 
because he is not going to starve his family to death. And it 
is a thin-margin business in too many respects. So, to the 
degree that we can get something here where he is paid for the 
way he produces, that can be economically significant, 
environmentally beneficial, then I think you find a lot of 
people willing to do it. If you tie it up in too much 
difficulty, cost, regulation of it, I think it loses----
    Ms. Blackman. We have a good----
    Senator Brownback.--its attractiveness.
    Ms. Blackman.--system on the ground. And as I stated 
earlier this morning, Kansas has been noted for the 
conservation issues and practices that we accomplish here in 
our state. I think we can be a model for some other states 
within our Nation. And our system is working, and we get 
excellent technical support through NRCS and so forth for our 
producers to be able to continue to put this best-management 
practice on the ground--to bring better water quality, better 
soil quality, better production--into our efforts out there.
    And we would like to see that these efforts would be 
rewarded for those good-steward practices. So I would feel that 
that would be something that should be being made as a key 
issue in looking at the overall picture of carbon sequestration 
and the opportunity for marketing carbon credits.
    Senator Brownback. Mr. Hartsig, what protocols will you be 
using to monitor and verify the carbon storage of enrolled 
acres? I heard Dr. Rice talk about global position systems, 
computer modeling. What sort of protocols are you looking at, 
as a verifier in this field?
    Mr. Hartsig. I think those basic protocols, such as you 
indicated, in using the tools that are available, currently 
most of the tools available are probably a little bit more 
labor-intensive than those that will develop, I think, very 
shortly, as Dr. Rice had indicated. Definitely GPS positioning. 
We are looking at using remote-sensing technology, perhaps 
satellite technology, to be able to identify and look at fields 
on the ground from satellite technology. When you use a multi-
spectral aspect, there are potential techniques for--and, 
actually, there are existing techniques--for looking at the 
ground cover to see what is there under what conditions and if, 
indeed, the farmer has the acreage that he claims, as well as 
if he has put the crop in the ground, and if it is under no-
till conditions. The no-till conditions from satellite data is 
a little bit more difficult, but we are looking at strategies 
for that.
    Senator Brownback. Are we going to be able to do this from 
satellites so that you will be able to have an accurate degree 
of verification that the farming practice that was set is being 
done and the carbon being accumulated, that we have a fair 
degree of certainty this is being accomplished?
    Mr. Hartsig. Using satellite data, you are looking at the 
practices; you are not looking at soil carbon content. Unless 
something can peer down from outer space--and I do not know 
what they have in the Government at this point----
    Senator Brownback. That is black-box programs----
    Mr. Hartsig. Right.
    Senator Brownback. But the actual verification of carbon 
content is still an on-the-ground type thing. Ideally, with 
this ???* system that Dr. Rice has mentioned and that they are 
researching and developing, that sounds like it has tremendous 
opportunity and potential for doing a rapid, real-time analysis 
of soil carbon content. Again, that is an on-the-ground 
procedure. As Ms. Carey has indicated, a lot of these 
procedures for looking at and verifying the amount of carbon in 
the soil can be onerous.
    A strategy is going to have to be developed as to what 
percentage or to what degree are we going to look and what 
frequency are we going to be looking at carbon in the ground. 
Dr. Rice has indicated he would like to see the development of 
check standards or reference points in landscapes, for various 
landscapes, to use as an indicator within regions, within 
locations. So that data can be interpolated as long as people 
are following specific practices. Using remote-sensing data, 
that is where we look for the practices.
    So it is a combination of strategies and protocols that 
will have to be developed. And again, as I had indicated, these 
are things that are going to have to be agreed upon, in the 
scientific community, with Government, with the actual people 
on the ground and with the industry, to say, ``Yes, we agree 
that this is going to work.''
    Senator Brownback. But you do not see any real problem in 
being able to get this done. It is just--this is going to 
take--and probably going to be a lot more labor intensive at 
the outset than it is when we get the ultimate practices that 
establishes--we build the database up of information and----
    Mr. Hartsig. That is absolutely right.
    Senator Brownback.--based upon farming practice, geographic 
location, soil type----
    Mr. Hartsig. Right. Any project of this magnitude is always 
more difficult at the outset, because you have that data 
collection, you have the trying it out, the testing of the 
procedures to make sure they work. If they do not work or if 
there is a small flaw or if something comes better, you go back 
and you try that. So there is a continual refinement process. 
The refinement process will make that a more eloquent, more 
efficient system as you go through the time.
    Senator Brownback. Do you think--some others were saying 
earlier that the carbon variability varies more year to year 
than it does over a five- to 10-year time period, and that 
makes some sense to me, because you get variabilities in what a 
crop produces based upon did we get any rain this year or not. 
And you can predict that a little better over a five- to 10-
year window than you will on a year to year. Like, we are going 
to have more carbon here this year than last year--I can 
guarantee that--in Kansas, given that we are getting rain this 
year and we did not last year.
    Senator Brownback. And do you think, in the future, we are 
probably going to go to a way where you buy or sell 
agricultural farm carbon credits over a period of years rather 
than a spot market year to year--where you go to year to year--
that, instead, you will probably sell 5-year credits or 10-year 
credits because it is a little more predictable?
    Mr. Hartsig. Actually, I think----
    Senator Brownback. To you or Dr. Walsh, either one.
    Dr. Walsh. Well, Senator, you have really hit on the core 
challenge here. We were advised, from the very beginning, a 
couple of years ago, I remember the discussion that the annual 
change in carbon relative to the carbon stock is quite small, 
and it is extremely expensive to detect that change. And what 
we need to do is to be right on average; that, on average, we 
need to have our standard value being realized, not only on an 
individual farm, but in our entire delivery territory, so if a 
farmer in Southern Minnesota, 1 year, has a slightly below-our-
standard number, we can be pretty confident that, the next 
year, he might be higher, or another farmer in Illinois or 
Indiana or Kansas might be higher, so that, on average, the 
carbon credits we are selling to industry represent real, 
tangible increases in stored carbon. So that concept of over-
time averaging and over-space averaging, I think, is correct. 
That is what the atmosphere sees, is that long-term and that 
real actual buildup. It does not exactly matter where the 
reduction occurs, as long as we get to happen.
    And I should note that our philosophy for this simple 4-
year pilot is to try to find credible, simple ways to take some 
of the transaction cost out of the system so that Ms. 
Blackman's members can get the most possible revenue from these 
trades. We do not know what the revenue stream will be. And I 
should also emphasize that it is very easy to underestimate the 
challenges of building the human institutions--the contracts, 
the verification procedures, the aggregation process, the 
trading rules to be employed by the aggregators. Once we have 
focused on a very simple definition, conservative definition, 
of the carbon credit, then we are freed up to start to focus on 
these other institutional challenges, which are significant. 
They are fun to work through, though. And the folks here in 
Kansas are helping to push that frontier, as well.
    But averaged over time, averaged over space, that is what 
is really going to matter to the environment at the end of the 
day.
    Senator Brownback. Well, this is a huge challenge. And we 
held a hearing, I think, here a couple of years ago and have 
been working on this topic for some time. Dr. Rice has been 
working on it for 20 years. It is a big challenge. I can see 
the progress that is being made in the thinking and the 
knowledge and where we are really going. So I have thought, for 
some time, that God gives us problems so we have to talk to 
each other, because otherwise we would sit at home and just eat 
bonbons----
    [Laughter.]
    Senator Brownback.--you know, sort of, ``I don't need to 
talk to anybody.'' So we have problems. So we have to talk with 
each other. And the United States is leading the world on 
figure this out. I have been in other places where they have 
said, ``Yes, this is a possibility.'' And indeed, when they did 
the ultimate protocol on global warming internationally, carbon 
sequestration is a huge part of cutting the final deal. It was 
a big part of it. And it was a big part of getting countries 
like Russia, a number of South American countries, into it to 
say that sequestration--but they did not know how they were 
going to measure it. They had a much better idea on forestry 
than they did on agricultural lands. I think we are coming 
along very nicely on agricultural lands.
    I do think probably, over time, this is going to end up 
being a 5-year credit or a 10-year credit, probably more likely 
than a spot market year to year. I think we will have a lot 
more predictability with that type of system to go with.
    I very much appreciate your testimony. I appreciate how 
much thought has gone into this. We will be taking this issue 
up, even possibly this next week, in the U.S. Senate, the bill 
you talked about. There are several other possibilities of 
bills coming forward that would push carbon sequestration but 
not the cap and trade that McCain-Lieberman, which is a 
controversial step yet. But there is a lot of other carbon 
sequestration issues that will be coming forward, possibly even 
this next week, as we debate the energy bill in the U.S. 
Senate.
    With that, I thank you all for your attendance, your 
testimony. I thank the audience for being here. I think this 
was a very informative hearing. And the project and the work 
continues to move on forward.
    The hearing is adjourned.
    [Whereupon, at 5:02 p.m., the hearing was adjourned.]


                            A P P E N D I X

 Prepared Statement of James R. Mahoney, Ph.D., Assistant Secretary of 
 Commerce for Oceans and Atmosphere, National Oceanic and Atmospheric 
                         Administration (NOAA)

    Good afternoon Senator Brownback (and members of the Subcommittee).

    I am James R. Mahoney, Assistant Secretary of Commerce and Deputy 
Administrator of the National Oceanic and Atmospheric Administration 
(NOAA). I am appearing today in my capacity as Director of the United 
States Climate Change Science Program (CCSP). The CCSP integrates the 
Federal research on climate and global change, as sponsored by thirteen 
Federal agencies (the Departments of Agriculture, Commerce, Defense, 
Energy, Health & Human Services, the Interior, State, and 
Transportation; together with the Environmental Protection Agency, the 
National Aeronautics and Space Administration, the National Science 
Foundation, the Agency for International Development, and the 
Smithsonian Institution) and overseen by the Office of Science and 
Technology Policy, the Council on Environmental Quality, the National 
Economic Council and the Office of Management and Budget.
    I am very pleased to have this opportunity to describe the 
Administration's scientific research program on climate and global 
change, with specific reference to the important role that soil carbon 
sequestration can play in reducing net greenhouse gas (GHG) 
concentrations. Climate variability often plays an important role in 
shaping the environment, natural resources, infrastructure, and 
economy. Potential human-induced changes in climate and related 
environmental systems, and the options proposed to adapt to or mitigate 
these changes, may also have substantial environmental, economic, and 
societal consequences. Because of the pervasiveness of the effects of 
climate variability and the potential consequences of human-induced 
climate change and response options, citizens and decision makers in 
public and private sector organizations need reliable and readily 
understood information to make informed decisions about climate issues.
    President Bush's approach to addressing global climate change 
emphasizes science-based decision making, and recognizes that economic 
growth is part of the solution. A nation that grows its economy is a 
nation that can afford investment in research and development of new 
technologies. For agriculture, this investment will likely have the 
added benefits of increased agricultural production, improved soil 
quality, and increased soil carbon sequestration.

CCSP Carbon Cycle Research and Soil Carbon Sequestration
    Decision makers searching for options to stabilize or mitigate 
concentrations of greenhouse gases in the atmosphere are faced with two 
broad approaches for affecting atmospheric carbon concentrations: (1) 
reduction of carbon emissions at their source; and/or (2) enhanced 
sequestration of carbon--either through enhancement of biospheric 
carbon storage or through engineering solutions to capture carbon and 
store it in repositories. Enhancing carbon sequestration is of current 
interest as a near-term policy option to slow the rise in atmospheric 
carbon dioxide (CO2) and provide more time to develop a new 
generation of low-GHG emitting technologies.
    Successful carbon management strategies will require solid 
scientific information about the basic processes of the carbon cycle 
and an understanding of its long-term interactions with other 
components of the Earth system. Such strategies also will require an 
ability to account for all carbon stocks, fluxes, and changes and to 
distinguish the effects of human actions from those of natural system 
variability. Breakthrough advances in techniques to observe and model 
the atmospheric, terrestrial, and oceanic components of the carbon 
cycle have readied the scientific community for a concerted research 
effort to identify, characterize, quantify, and project the major 
regional carbon sources and sinks.
    The overall goal for the CCSP carbon cycle research is to provide 
critical scientific information on the fate of carbon in the 
environment and how cycling of carbon might change in the future. 
Current research on the global carbon cycle is focusing on two 
overarching questions:

   How large and variable are the dynamic reservoirs and fluxes 
        of carbon within the Earth system, and how might carbon cycling 
        be managed in the future?

   What are our options for managing carbon sources and sinks 
        to achieve an appropriate balance of risk, cost, and benefit to 
        society?

    Substantial current interest in carbon sequestration centers on 
land management practices that enhance the storage of carbon in soils 
and biomass. An example of research at the forefront of this field can 
be found within the Consortium for Agricultural Soils Mitigation of 
Greenhouse Gases (CASMGS), led by Dr. Charles Rice at Kansas State 
University. CASMGS is a multi-year, collaborative effort funded by the 
Department of Agriculture to improve the scientific basis of using land 
management practices to increase soil carbon sequestration, reduce GHG 
emissions, and provide the tools needed for policy assessment, 
quantification, and verification. More than 50 research and outreach 
projects among 10 institutions are underway focused on:

   Improving the understanding of basic processes and 
        mechanisms controlling soil carbon sequestration and GHG 
        emissions;

   Developing best management practices for carbon 
        sequestration;

   Using models and databases to improve prediction and 
        assessment of carbon sequestration and GHG emissions;

   Using measurements to evaluate the impact of management 
        practices on soil C storage, total GHG radiative forcing, and 
        soil NO3 leaching.

   Developing websites, publications, and newsletters to 
        communicate research findings and news with policymakers, 
        regulators, the public, and others.

    I view the CASMGS program to be a highly important building block 
in developing the information and management tools needed to optimize 
the deployment of soil carbon sequestration as a key component in 
reducing the growth of GHG emissions in the United States. Moreover, 
the CASMGS research projects can provide guidance for worldwide 
increased soil sequestration of carbon through the adoption of improved 
agricultural management practices. More details on CASMGS projects are 
available at www.casmgs.colostate.edu and www.oznet.ksu.edu/ctec.
    Other CCSP ongoing research evaluates the important role that 
sequestering carbon in cropland and grazing lands can play in 
mitigating the potential adverse impacts of climate change. For 
example, current research focuses on how carbon sequestration can be 
optimized through management of tillage, fertilization, irrigation, 
drainage, and other practices. In addition, methods are being developed 
for rapid, accurate, and cost-effective ways to measure carbon in soil 
directly, and to estimate it on large geographic scales.

CCSP Management and Planning Activities
    Since President Bush created the new cabinet-level management 
structure for climate science and technology programs in February 2002, 
the CCSP has made substantial progress on the program's objectives, 
including those related to carbon cycle research, through a variety of 
review and planning activities, including:

        New, Integrated Management Structure: The CCSP, under the new 
        interagency management structure that assures joint planning of 
        approximately $1.7 billion (annual budget) climate and global 
        change research, has (a) completed a comprehensive review of 
        the ongoing research programs in all CCSP collaborating 
        agencies, (b) prepared an interagency integrated climate 
        science budget request for FY 2004, included in the President's 
        budget request to Congress, and (c) prepared the basis for 
        operational interagency management of the FY 2003 budgets.

        Strategic Plan: The CCSP published an extensive Discussion 
        Draft Strategic Plan of its new 10-year strategic plan in 
        November 2002. A public workshop focusing on the plan was held 
        in December 2002 and was the most highly attended and 
        structured discussion of climate change issues held to date. 
        CCSP will publish its updated strategic plan for the climate 
        science program on June 25, 2003, after consideration of all of 
        the workshop discussions and the full range of the written 
        comments received after the workshop. The plan, which will be 
        subject to future modification as warranted by the emergence of 
        key science findings and key public questions to be addressed, 
        will guide the conduct of the Federal research activities, 
        including those focused on soil carbon sequestration. All of 
        the documentation of the CCSP strategic plan, the workshop 
        proceedings, and the public comments appears on the website 
        www.climatescience.gov.

        Comprehensive Review by the National Academy of Sciences: CCSP 
        requested that the National Academy of Sciences--National 
        Research Council (NRC) conduct a comprehensive review of the 
        draft and final versions of the CCSP Strategic Plan. The 
        Academy appointed a special 17-member committee of experts in 
        the physical, biological, social and economic sciences that has 
        provided preliminary public recommendations which are being 
        considered in the update of the strategic plan. The NRC 
        recommendations complement the input provided by experts 
        nationwide as part of CCSP's commitment to a highly open 
        process of public and expert participation in the understanding 
        of climate change issues and response strategies. The NRC 
        report on the final Strategic Plan will be available in the 
        fall.

        Integration of Scientific and Technological Developments: One 
        of the principal themes of the workshop was the likely need for 
        breakthrough technology options to address the long-term 
        challenge of global climate change. CCSP is working closely 
        with the Climate Change Technology Program to assure that: (a) 
        science drives the definition of technology needs, and (b) 
        science is used to evaluate both the intended and the 
        unintended consequences of proposed technology innovations.

        Major U.S.-Led Earth Observation Summit Announced: Building on 
        the need for a truly integrated global climate and ecosystem 
        observing and data management system as documented in the CCSP 
        Discussion Draft Strategic Plan, the United States will host an 
        Earth Observation Summit to be held in Washington, DC, on July 
        31, 2003. The meeting will involve the Science Advisors and the 
        Science or Technology Ministers of the G-8 nations and other 
        nations, and will serve as a foundation for comprehensive 
        observation of the Earth's climate system, which will be a 
        focus of the December 2003 Conference of the Parties of the 
        United Nations Framework Convention on Climate Change.

Closing Statement
    Comprehensive, objective, transparent and well-reviewed scientific 
inquiry must be the core methodology used to evaluate the highly 
complex relationships between natural and anthropogenic influences on 
Earth systems, and to project potential outcomes of the many different 
investment and action strategies that have been proposed to mitigate or 
adapt to potential changes in global conditions.
    While many important scientific and technological aspects of the 
climate change issue await improved resolution, some issues are already 
sufficiently resolved to compel action. In particular, soil carbon 
sequestration is clearly identified as a win-win strategy that deserves 
rapid implementation. Soil carbon sequestration provides for improved 
agricultural productivity and enhanced economic outcomes and assured 
contributions to meeting U.S. and global carbon management goals. We 
look to the highly important CASMGS research and outreach programs as 
major resources for the development and implementation of enhanced soil 
carbon sequestration practices in the United States and throughout the 
world.
    Thank you very much for the opportunity to participate in this 
hearing.

                                  
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