Carbon credits are in the news recently with the industry marking some significant milestones. Indigo Agriculture announced the first carbon credit purchase commitments from major global brands, including JPMorgan, Barclays, Shopify, and IBM. At the same time, carbon marketplace developer Nori is about to finalize the first high-volume purchase of credits on its platform which, coincidentally is being sold to Shopify. The financial compensation for the Nori marketplace credits will go to Kelly Garrett, an Arion, Iowa, farmer enrolled in CarbonNOW.
The companies and programs involved in facilitating these carbon credit sales are among several startups and new organizations that are involved in developing the fledgling market for agriculture. For farmers, the idea is that they can establish a revenue stream from adopting certain practices, some of which producers may already be utilizing. These are practices like cover crops that “trap” carbon and which companies can buy to offset their own carbon output.
Demand has actually never been higher for carbon credits with major corporations like Apple and Facebook pledging to go “carbon neutral”, and some even aiming for “carbon negative,” meaning they will remove more carbon from the environment than what they create. Businesses have actually been buying carbon credits to offset their greenhouse emissions for a couple of decades now but it’s only recently that the market has opened widely for agriculture. This is bringing a lot of new players to the table in a space that is not very familiar to a lot of farmers yet, and one that might also be ahead of comprehensive regulation. Below is a detailed look at how the market operates and some resources for producers thinking about exploring the option for themselves.
- What is a Carbon Credit: A “credit” is a tradable permit that allows the company that holds it to emit a certain amount of carbon dioxide or other greenhouse gases. One credit permits the emission of a mass equal to one ton of carbon dioxide. The carbon credit is one half of a so-called “cap-and-trade” program. Companies that pollute are awarded credits that allow them to continue to pollute up to a certain limit or a “cap.” That limit is reduced periodically. Meanwhile, the company may sell any unneeded credits to another company that needs them, hence the “trade” part. Likewise, companies can purchase credits outright on various markets. Prices vary depending on where they are generated and sold. There are two types of credits:
Voluntary emissions reduction (VER): A carbon offset that is exchanged in the over-the-counter or voluntary market for credits.
Certified emissions reduction (CER): Emission units (or credits) created through a regulatory framework with the purpose of offsetting a project’s emissions. This is the type that a grower would be creating to sell on a marketplace.
- How Credits are Created: Carbon credits are generated by actions that actively pull carbon dioxide and other greenhouse gas (GHG) emissions out of the atmosphere. Once these credits have been verified by third parties, they are made available for sale through carbon removal marketplaces. Quantification and verification is based on different methodologies depending on the marketplace.
The primary organizations that manage GHG crediting programs are Climate Action Reserve, Verra, American Carbon Registry, and Gold Standard. There is also the USDA’s COMET-Farm tool a carbon and GHG accounting system that is being used to quantify sequestration by marketplace Nori. Some outfits have their own accounting and verification methods. Some also have complex reporting requirements that can also be expensive.
Farmers Business Network has a program called Gradable that is focusing on carbon abatement. Canada’s Farmers Edge has a new partnership with Radicle Group Inc., the largest developer of agricultural carbon credits in North America, to create a new, high-tech carbon credit program powered by real-time field data.
In June, a group of bipartisan lawmakers introduced The Growing Climate Solutions Act, which would create a third-party verifier certification program at the U.S. Department of Agriculture (USDA) to make participation in carbon markets easier for farmers. In their introduction of the bill, the lawmakers note that the volume of credits generated through forestry and land use activities increased +264% between 2016 and 2018.
- Carbon Markets: Credits created by ag producers are sold on carbon credit marketplaces. Indigo Agriculture and Nori are two big technology-driven marketplaces Indigo estimates carbon credits generated based on data that the growers provide and then uses a sampling method to ground-truth the models. Nori, as mentioned before, uses the USDA’s system. There is also a program from Locus Ag called CarbonNow that leads farmers through the carbon credit process.
- Critics: Civil Eat did a good research piece on this topic and found the main criticisms from groups such as the Institute for Agriculture and Trade Policy and the National Family Farm Coalition (NFFC) are that carbon markets are inherently inequitable, lock out most farmers, and could lead to more pollution, particularly in disadvantaged communities. NFFC’s national programs and policy coordinator Jordan Treakle says that carbon credit prices are too low to make transition to regenerative practices practical for most small and mid-sized farms. Rewarding only large industrial-sized farms can also feed into the trend of farm concentration and consolidation, he said, and benefit the large food corporations that are now clamoring for regenerative practices and carbon markets. (Sources: Civil Eats, AgFunder, CropLife, Washington Post)