* Vilsack says well-crafted bill could avoid costs

* USDA studying ways to improve carbon offsets

WASHINGTON, March 15 (Reuters) - The U.S. agriculture secretary told a farm group on Monday that a well-designed climate bill would provide opportunities for farmers and ranchers to make money in contracts for carbon offsets.

The U.S. Department of Agriculture “is committed to helping Congress design and implement a carbon offsets market that will provide significant income opportunities to America’s farmers and ranchers,” Secretary Tom Vilsack told the National Farmers Union convention in South Dakota on Monday.

Climate bill opponents, such as the 6 million member American Farm Bureau Federation, have said higher fuel and fertilizer costs resulting from the legislation would outweigh revenue from contracts to offset greenhouse gases by planting trees and crops that capture carbon.

USDA chief economist Joseph Glauber said in a memo released by the department on Monday that “some actions to mitigate greenhouse gas emissions can reduce commodity output.” He said converting bare or cultivated land into forests, or afforestation, was one example of where that can occur.

Glauber is working with the Environmental Protection Agency to study ways to improve agricultural carbon offsets. Offsets would allow polluters to invest in clean agriculture projects such as afforestation and techniques to store carbon in soil, rather than cut their own emissions.

“USDA and third-party analyses, as well as our experience in implementing conservation techniques, make it absolutely clear that properly structured legislation will avoid unintended consequences and provide enormous benefits to our agricultural economy, and our environment,” Vilsack said.

Senators John Kerry, a Democrat, Lindsey Graham, a Republican, and Joe Lieberman, an independent, are working on a compromise climate bill. They could outline the bill next week, but the legislation faces an uncertain future on opposition from lawmakers from energy-rich and agriculture states. [ID:nN15216776] (Reporting by Timothy Gardner; Editing by Marguerita Choy)