[Terrapreta] Charcoal, Carbon Credits, and Net Present Value of TP Benefits

[Peter Read]

Dear Kevin and all
I'm afraid I don't know much about the detailed workings of these markets or 
what brokerage fees are.  I guess that as the market matures fees will 
settle down in line with fees in other markets.
As to who actually gets the credits, I believe it will turn out to be a 
contractual matter.  I do some activity (e.g. grow corn) on your land which 
generates $Y carbon credits.  The contract specifies whether you or I keep 
the $Y and what rent I pay - if you keep the credits the rent is lower, if I 
keep the credits the rent is higher.  This simplification abstracts from the 
costs associated with the corn growing activity of course -- no doubt a real 
world contract would be a pretty complex document.
Peter


----- Original Message ----- 
From: "Kevin Chisholm" <kchisholm at ca.inter.net>
To: "Peter Read" <peter at read.org.nz>
Cc: "Richard Haard" <richrd at nas.com>; "Sean K. Barry" <sean.barry at juno.com>; 
"Miles Tom" <terrapreta at bioenergylists.org>; "Toch Susan" 
<anaturalresource at gmail.com>; "Pilarski Michael" 
<friendsofthetrees at yahoo.com>; "Baur Hans" <hans at riseup.net>
Sent: Saturday, March 15, 2008 4:47 PM
Subject: Charcoal, Carbon Credits, and Net Present Value of TP Benefits


> Dear Peter
>
> Thanks very much.
>
> Peter Read wrote:
>> The prices quoted are usually per tonne of CO2, currently about $5 in 
>> Chicago and 20 Euros in Brussels. Multiply by 44/12 for the price /t C.
>
> This works out roughly at $US 5 and $US30, for CO2, (USA) and $18 and $110 
> for pure C. (Brussels)
>
> Approximately what percentage mark-up would the Carbon Credit Broker 
> charge? Would the above prices be the price that the Producer gets for his 
> Carbon Credits, OR would they be the price that the Customer pays the 
> Broker for the Carbon Credits?
>
> There is no way that a Charcoal Producer could produce Charcoal for sale 
> at $18 per tonne. However, there may be special circumstances where he 
> would be able to produce it for sale at $110 per tonne.
>
> Fundamentally, the use of Charcoal in TP must be justified on the basis of 
> the its incremental agricultural benefit. If we assume that Charcoal in TP 
> gives a return with aNet Present Value  equivalent to $50 per tonne of 
> Charcoal applied, then if he can get Charcoal for $50/tonne, he could 
> break even. Since Charcoal will probably cost about $100 to $200 per 
> tonne, there is no way Charcoal could be used in TP in the US; if he could 
> get Charcoal for $100 per tonne, and get the benefit of a $18 Carbon 
> Credit, his Revenue per Tonne of Charcoal applied would be about 
> $50+$18-$100 = -$32 per tonne Charcoal. He would need to get a NPV benefit 
> of $82 per tonne of charcoal plus the $18 Carbon Credit in order to break 
> even by applying $100 Charcoal. With the same NPV benefit and the same 
> Charcoal Cost, the arithmetic for Brussels would be $50+$110-$100 = $60 
> per tonne C applied
>
> In simplistic terms, in the US, the Carbon Credit must be about 2 times as 
> much as  the present Carbon Credit for the Farmer to justify Charcoal 
> application, assuming a charcoal cost of $100 and a NPV for the benefits 
> of $50, per tonne carbon. With the presently low Carbon Credit in the US, 
> TP implementation success will depend strongly on the NPV of its benefits.
>
> If the selling price of TP grade Charcoal is $US 200 per tonne, the NPV of 
> the Charcoal Addition must be in the range of $150 and $90 in the US and 
> and Brussels, respectively, assuming the same value for Carbon Credits.
>
> Best wishes,
>
> Kevin
>
>
>
>
>