In the rolling foothills of the madison range in southwestern Montana, a cabin-style house sits beside a washboard dirt road. A few horses loiter in a corral outside, and spotted ranch dogs bark and jump at the fence. James Stuart, manager of Sun Ranch, lives here with his wife and three kids. Christian, the oldest at four years, just got his first pony.

Stuart, who comes from a long line of rugged Scots who settled this region, has auburn hair and eyes lined from squinting—or smiling—in bright sunlight. He loves this land. You can hear it in his voice as he rattles off the creeks and canyons of the 26,000 acres he’s surveying from the cab of his silver Dodge pickup. We’re parked on an overlook in the middle of the ranch as Stuart’s gloved hand traces the outlines of the landscape around us. “We have Wolf Creek to the north, we have Moose Creek coming down out of this big canyon....” His voice trails off as our line of vision ends at the hilly horizon.

Stuart is accustomed to the usual trials of a working ranch: blizzards, wolves, broken fences and the occasional errant cow. But it’s not all business as usual here. Last year Sun Ranch became the first ranch in the U.S. to cash in on a program that pays rangeland owners to help fight global warming. The ranch received a $30,000 check for the carbon dioxide its grasslands have been absorbing from the air. The more carbon dioxide in the ground, the less of it in the atmosphere, and that benefits everyone.

Trading Carbon
Paying landowners to store carbon is a strategy that is rapidly gaining in popularity, and rangelands are the newest frontier in an emerging marketplace that enables polluters to buy carbon credits from projects designed to reduce greenhouse gases in the atmosphere. Buyers use these credits as “offsets” for their activities that contribute to climate change, everything from manufacturing to air travel.

In the U.S., purchasing carbon credits was being done voluntarily, but by late September, 10 northeastern states agreed to implement the nation’s first “cap and trade” system, which would place an upper limit on the amount of carbon dioxide and other greenhouse gases that industries are permitted to release into the atmosphere. To keep their emissions below this limit, companies would trade carbon credits through an exchange similar to the stock market. A similar cap-and-trade scheme has proved successful at reducing sulfur dioxide emissions—which cause acid rain—in the U.S. since the mid-1990s. And prior to election day, both presidential candidates Barack Obama and John McCain had called for trading, too.

Plenty of trading has already been happening, however, at the five-year-old Chicago Climate Exchange. In the first nine months of 2008, more than 60 million credits—one for each ton of carbon—were traded on the exchange. Most trades are tied to projects such as planting trees, protecting tracts of rain forest, installing renewable energy sources and harvesting methane from landfills.

\Rangeland sequestration projects have generated only about 200,000 credits but are on the cusp of a major boom. The rangelands of the American West naturally absorb about 190 million tons of carbon dioxide a year. That’s about what 40 coal-fired power plants emit, but there’s still plenty of room for improvement. Through its Rangelands Soil Carbon Management Offsets Program, the exchange offers a financial incentive for ranchers to increase the amount of carbon dioxide that is absorbed by their lands. Sun Ranch was the first to qualify.

Soil Sequestration
Grass absorbs carbon dioxide the same way trees do, but on a smaller scale. Through photosynthesis, each plant takes carbon from the atmosphere and uses it to build more plant matter. When grass dies or trees are cut down, that carbon is released back into the atmosphere. But grass plants also release carbon out of their root tips to fungi in the soil, says Stephen Porder, who teaches biogeochemistry at Brown University. “When those roots die or the fungi die, they’re eaten by some microbe or worm, and a portion of that carbon gets stabilized,” he explains. “It gets stuck onto a clay mineral or a particle and stays in the soil.”

The best way to maximize the amount of carbon that gets trapped underground is to maximize grass growth. Overgrazing and drought are the biggest challenges to carbon sequestration because they prevent plants from putting down healthy roots.

Not all regions of the country, or even of the West, are created equal when it comes to carbon absorption. The more fertile grasslands of Kansas, for example, absorb about 20 percent more carbon per acre than the arid grasslands of Montana. That is according to calculations done by Joel Brown, a rangeland management specialist at the U.S. Department of Agriculture’s Natural Resources Conservation Service, to help the Chicago Climate Exchange determine how much to pay ranchers for sequestering carbon.

As the pilot project for the exchange’s rangelands program, Sun Ranch won approval to sell carbon credits only after submitting soil samples that were taken from different parts of the ranch and tested to calculate how much carbon the ranch’s acreage could absorb. But doing that for every ranch in the program would be a logistical nightmare for the exchange. Instead Brown divided the U.S. into six regions based on average rainfall. The wetter the region, the more carbon its grasslands, when healthy, are expected to absorb.

Porder says the science still isn’t specific enough for him. A ranch on one side of a mountain range could get less rain (and therefore absorb less carbon) and still be in the same carbon absorption region as a wetter region on Brown’s map.

The exchange also places each ranch into one of two categories: “nondegraded” rangeland that is being managed to increase carbon sequestration or “improved” rangeland that has been degraded by overgrazing or extended drought but is being restored through the adoption of better land management practices. In most regions, the second category is credited at a higher rate because it has greater potential for increased carbon storage. Most of the ranches that have been approved to sell credits are in this category.

In the Rocky Mountain region where Sun Ranch is located, Brown’s map indicates that an acre of nondegraded rangeland can sequester 0.12 ton of carbon a year and an acre of improved rangeland can sequester 0.28 ton. At the higher rate, a 100,000-acre ranch could get approved to sell 28,000 credits on the Chicago Climate Exchange. Prices have fluctuated between $1.85 and $7 per credit over the past few years, but even at the lowest prices those credits are worth five figures to the rancher.

Half a Herd
No matter where a ranch is located, getting approval to sell carbon credits is no easy task. “There is a lot of work that has to go into the documentation of the productive capacity of that land, the current condition that it’s in, the historical practices over the past, and then some agreements on monitoring and the kind of adjustments they’ll make in response to changes in climate,” Brown says.

Sun Ranch had to cut its cattle herd by about half to match the rated carrying capacity of the land. Even so, the check the owners received for the sale of carbon offsets increased the ranch’s income by a considerable amount. Not all ranchers have to make such drastic cuts, but they do have to provide proof that their cattle are being rotated evenly around the ranch, and they must demonstrate that they have a plan to prevent overgrazing should a drought hit. The ranchers must also agree to an annual audit to verify that they are sticking to an approved plan.

Porder worries about what happens when a rangeland has been fully restored and has already absorbed the maximum amount of carbon possible but the rancher is still selling credits on the market. “If you change your grazing practices, you shouldn’t be able to sell credits forever, because sooner or later your land will stop taking up more carbon. It will be restored.”

Currently eligible projects are required to make a minimum commitment of five years. After that, there is no guarantee that the carbon stashed in the soil will remain there permanently. If a rancher were to plow his land, for example, that would release the carbon to the atmosphere. So it is only considered “stored” as long as the rancher is active in the program.

Despite these uncertainties, Porder says he is optimistic that rangeland offsets will promote better land management in the West. “Will sequestration be a solution? Absolutely. Is it a panacea? Absolutely not.”

The Chicago Climate Exchange is wary of relying too heavily on rangelands for carbon sequestration because they do not absorb carbon dioxide as prodigiously as rain forests, for example, and because the science of how grazing and droughts affect soil sequestration is relatively new. But Michael Walsh, executive vice president of the exchange, says that does not mean he and his colleagues are not excited about the program’s potential: “It may be a small piece of the solution set, but it can be a significant opportunity for the landowner who undertakes these best-management practices.”

Michael Wara, a research fellow at Stanford University’s Program on Energy and Sustainable Development who has studied carbon-offset policies, agrees that rangelands are a bit player in the carbon marketplace. “A million tons, that’s not nothing, but the power sector in the U.S. emitted 2.5 billion tons” in 2007, Wara points out. “What’s going on here is that folks who have an interest in selling credits are setting up rules that they hope can be adopted into a future federal bill. I see this as positioning for what’s really going to happen later, so the volume right now is less important than the science and the rules.”

Ready to Ride
Though still small, the rangeland-offsets program is poised for rapid growth. A firm called Beartooth Capital brokered the Sun Ranch carbon credits as a pilot project, but a nonprofit organization called the National Carbon Offset Coalition now manages the ranch’s contract with the Chicago Climate Exchange. The coalition works with more than 50 ranches stretching from Montana to New Mexico, and executive director Ted Dodge says the organization was aiming to sell one million carbon credits by the end of 2008, quintupling the number already on the market and sequestering one million tons of carbon in the process. If the price of carbon stays around $2 per ton, close to $2 million would have been passed along to ranch owners this year, with a cut going to the coalition.

Dodge is enrolling about 100,000 new acres every month. He says many of the ranchers may not be sold on the science or political arguments surrounding the issue of climate change, but they are seeing dollar signs and wanting in. “We’re about whether there’s a potential market here, and we think it needs to be designed correctly, and it won’t work unless there’s an enforced market,” he comments.

Dodge points out that a mandatory cap-and-trade system would mean big things not only for global climate but also for the American West: “We’re talking about soil-quality improvement, water-quality improvement, wildlife habitat improvement. What we’re really talking about is applying good conservation practices here, and now we can put a carbon number on it and pay people for that. I believe that with this market we have the potential to impact land use in this country like we’ve never done before.”

One particular trend could be reversed: as ranching budgets have grown tighter in recent years, more and more ranchers have sold their land to developers. Some feel pressure to graze too many animals. It’s a hard business to be in, and Stuart says young people don’t see much of a future in it. Rangeland carbon credits offer a “bonus” that could help turn things around for struggling ranchers and attract a new generation of owners. And they represent a growing recognition that ranchers who are good stewards provide important ecological services as well as hamburgers and steaks.

Note: This article was originally published with the title, "Carbon Cowboys".