Carbon credit markets can seem like a lnd of smoke and mirrors. While the understandable fluctuation of an emerging market may be anxiety-inducing for many farmers familiar with the semi-steady flow of commodities futures, carbon markets offer an undeniably attractive free-market economy alternative to regulation — to the tune of $1.4 billion in 2020.
“The key thing to understand here is that this is a completely voluntary market right now,” said Kansas State University Agricultural economics professor Nathan Hendricks. “In some places, like California, there’s some regulation, but for the most part, this is corporations saying that they want to reduce their greenhouse gas emissions and they are willing to go out and pay people to help offset them.”
Companies hoping to voluntarily reduce their carbon emissions include a wide variety of business models and supply chain areas. Hendricks said Cargill has pledged to reduce supply chain emissions by 30% before 2030. Pepsi committed to net zero emissions by 2040 and Microsoft has stated its intentions to be carbon negative by 2030.
In all of these cases the company is not promising to completely halt activities that result in carbon emissions. They are simply agreeing to sponsor activities that sequester or offset carbon emissions.
“If it’s more expensive for them to reduce emissions than buy carbon offsets, they would rather buy carbon offsets,” Hendricks said. “That’s what’s driving the market.”
Carbon Quality Assurance
The main question, for regulatory authorities, corporations and farmers alike, pertains to quality assurance. Whether carbon is being sequestered in the soil and if carbon credit holders are being paid accurately for the amount and quality of carbon contributed.
The way corporations seeking carbon credits have chosen to address those concerns is by utilizing third party intermediaries like Nori and Indigo to independently verify and acquire carbon credits.
“One of the key roles of intermediaries is to ensure that this carbon was actually offset,” said K-State agricultural economics doctoral student Micah Cameron-Harp. “That’s going to drive a lot of those rules that we’re seeing right now.”
Carbon intermediaries are concerned with four major factors when verifying soil carbon and acquiring carbon credits: Additionality, permanence, longevity and uncertainty.
Additionality is responsible for most carbon credits requiring that the carbon-adding farming practice have started in recent history. It targets corporations seeking to add carbon to the soil, not pay for existing carbon.
Permanence and longevity go hand in hand. Permanence refers to carbon being added to the soil to stay and longevity typically deals with the duration of the farming practice applied.
“Longevity depends on the intermediary,” Cameron-Harp said. “So for some, they’re going to require three to five years of data before the change was made while for others it can be as short as one year of data.”
Now, a major sticking point for long-term no-till farmers and early adopters of regenerative farming is the way carbon credit markets reward new adopters of farming practices and seemingly ignore decades of devoted carbon sequestration.
Scientifically, carbon reaches a saturation point in the soil after 20 years of most no-till farming practices. While the farm would not be leaching carbon at that point, it also would not be sequestering additional carbon in order to offset carbon emissions.
“So that’s why they have these kinds of strict guidelines that really have to do more with the soil carbon dynamics, than actual farming practices,” Cameron-Harp said.
Uncertainty deals with the possible alterations to farming practices and soil carbon sequestration in the long periods outlined by some carbon credit contracts.
“What they really want to know is that carbon, once the change is made, isn’t going to be released,” Cameron-Harp said. “So let’s say if you switched to no-till, then the land is going to be sold perhaps, and then tilled up and all that carbon released back into the atmosphere. This is why most of the companies have these contracts, which are going to involve verification over a 10 year period and some type of stipulation where they withhold some of the credits until the end of the contract.”
Even with the parameters of adaptability, permanence, longevity and uncertainty, there are many unanswered and unexplored questions in relation to the regulatory side of carbon credits.
“If we switched to cover crops, are we producing something like one ton of carbon per acre per year, or going to two tons of carbon per acre per year? And is it going to be homogenous across the field?” Cameron-Harp said. “And just as an example, I pulled up some estimates from some Nori literature, showing that even within the same environment, that you have subtle variation in your soil type, for instance, we noticed the resulting payment per acre changing by 55 cents.”
Next Steps for Kansas
There are three major companies offering carbon credit options for Kansas farmers, with new and emerging opportunities popping up frequently. Bayer, Indigo and Nori have the most longevity and participation in the current market.
Bayer is an option different from traditional carbon credit contracts, offering a pay by practice solution with flat rates for cover crops and no-till practices. The contract lengths are often shorter for Bayer options, often come with discounts on cover crop seed and eliminate the volatility of selling carbon credits on the open market.
The catch, is that Bayer pays only for the practice itself and retains ownership of the carbon credits, so if carbon markets drastically increase, the additional profit would not be relayed to the farmer implementing the practice.
Nori and Indigo are similar options that both require validation from multiple years of farm data, as well as long-term contracts.
Carbon credit contracts, pricing and collaborations between intermediaries and data or agricultural companies are becoming more common. Always fully research the current carbon parameters before jumping in to the carbon credit market.