Ag carbon markets’ top 10 questions

URBANA, Ill. — A guidebook for farmers, agricultural advisers and conservation professionals seeking in-depth information on carbon markets has been published by American Farmland Trust.

“Top 10 Things You Wanted to Know About Ag Carbon Markets” defines agricultural carbon markets or an environmental market developed to meet growing demand from corporations with the supply of carbon credits from the agricultural sector.

Farmers are paid for reductions in greenhouse gas emissions and soil carbon sequestration on their land, and corporations use the credit to offset emissions.

Farmers can use climate-smart practices, including no-till, cover crops, and nutrient management to provide economic and environmental benefits to their farms, such as reduced input costs, increased yield stability, and greater soil health.

“The landscape of ag carbon markets and programs is changing rapidly. We’ve been hearing about them for the last several years. It really makes it hard to keep it all straight,” Kris Reynolds, AFT Midwest regional director, said at Illinois Soybean Association’s Soybean Summit.

“Our policy and science experts at AFT created a guidebook to not only help farmers, but also to help advisers and conservation professionals navigate the ag carbon markets.

“Corporations are increasingly using the purchase of carbon markets and carbon credits to meet their sustainability goals, some of which can be generated by farmers through the adoption of climate-smart practices.

“However, among the many agriculture carbon markets, there are significant variations in costs, in risks, and also in benefits. So, to help farmers and advisers navigate these programs we’ve created a list of 10 questions that farmers might want to ask when considering participation.

“The first four questions provides a background on how ag carbon markets work. The remaining six are those questions that are at the top of farmers’ minds when they’re exploring carbon market opportunities.”

Here is Reynolds’ overview of the top 10 list:

1. What is an ag carbon market and why are farmers being asked to join?

An ag carbon market is an environmental market developed to meet the growing demand from corporations with supply of carbon credit from the agricultural sector.

Farmers are paid for the reductions in greenhouse gas emissions and soil carbon sequestration on their land. Corporations use that credit offset their hard-to-avoid emissions.

2. How many ag carbon markets are there and how do they differ?

Ag carbon markets aren’t new. They’ve been around for about 30 years. I remember in one of my first years working as a resource conservationist in the early 2000s there was this Chicago Climate Exchange that was focused on no-till at the time.

Ag carbon markets have been rapidly changing and being created and discontinued frequently, we’ve done our best in this guide to try to chronicle the 27 markets that we see today.

Some of these are compliance offset markets where carbon emission reductions are regulated, but mostly we’re talking about voluntary carbon offset markets where corporations pay others to help them reduce their scope one emissions from their facilities and vehicles.

Alternatively, scope three programs or inset markets are those where a corporation is working to reduce emissions within its supply chain by paying for improved practices during the production of its agricultural inputs.

3. What is additionality, why is it so important, and how does it effect me?

Additionality is a criteria for carbon markets to ensure that a corporate buyer’s payment results in new greenhouse gas reductions or carbon sequestration beyond what would have occurred without their payment. It’s way of determining that the buyer’s carbon payments created a climate mitigation benefit.

For farmers, this means implementing a new climate-smart practice for their fields to achieve more than business-as-usual reductions in greenhouse gas emissions and/or soil carbon sequestration to make up for the corporate buyer’s emissions.

In other words, if there are practices that you’ve already have been doing, that might not make you eligible for some of the carbon markets when they talk about additionality.

Some of those programs do allow previous conservation practice adoptions to take place. You may receive a little bit lower payment on those acres.

4. How is the government involved in ag carbon markets?

The federal government currently has no role in carbon markets. They are helping to improve the quality of carbon credits through the measurement, monitoring, reporting and verification process.

In 2022, the U.S. Department of Agriculture invested over $3.1 billion into the Partnerships for Climate-Smart Commodities. It’s one way that they are providing support to the corporations for establishing new carbon markets.

5. Am I eligible to participate?

Each carbon market uses different criteria. Most allow for rented land, but in Illinois over 60% of the land is rented. That could be a barrier to conservation practice adoption. It also can be a barrier to program participation.

Some also have minimum acreage requirements, and some only operate in certain states or for certain commodities and for certain climate-smart practices.

The guidebook also offers examples of ag carbon markets for each eligible criteria and points to the market comparison table developed by others like the Illinois Sustainable Ag Partnership.

6. Are the current ag carbon markets paying for practices or outcomes?

Ag carbon markets may pay for one or multiple environmental outcomes, including carbon sequestration, the reduction in greenhouse gas emission, including carbon dioxide, methane, nitrous oxide, and/or the reduction of a pollutant such as nitrate. Most markets are currently focused on carbon and greenhouse gases.

The Soil and Water Outcomes Fund is paying for greenhouse gas reductions and water quality outcomes, as well.

When a payment is based on the per acre implementation of a specific practice, the payment is based on a computer modeled environmental outcomes that are expected to be achieved by adopting that practice on those particular acres.

7. They want to look at my what? What information and access do I have to provide?

It’s all about the data, marking sure that you have the data that you need available, that you have verification, that you have certification of what you have been doing on your farm.

So, to determine eligibility, additionality and estimate outcomes, carbon market developers usually need three to five years of historical data, and also ongoing field data such as field boundaries, planting information, chemical and fertilizer application, organic amendments, also harvest or yield information, as well as a list of conservation and tillage practices that are used on the farm.

8. How long are the contracts and who’s liable if something goes wrong?

Contracts can range anywhere from one to three to five years, up to 10 years. Some of these are also renewable.

During the contract period, the farmer is responsible for implementing the practices that remove carbon from the atmosphere, that’s stored in the soil, and continue to protect that stored carbon. That’s a really important part of it. We don’t just want to store it in the soil; we want to continue to protect it while it’s stored in the soil.

We all know that soil carbon is also at risk of returning to the atmosphere through unintentional or intentional reversals. Unintentional could be the field catches on fire and removes all of the residue.

Intentional reversals are the land is plowed that next year and all that carbon that you just stored in the soil is now going back into the atmosphere.

It’s really important that understand those contract requirements and both concepts because an intentional reversal would likely put you at default in your individual program.

9. Money matters. How can I make a market work for me?

The average price for a carbon credit right now in the United States is about $20. It ranges anywhere from $15 to $30 for a carbon credit. Per acre payments can range anywhere from $1 per acre to $34 per acre.

So, for most farmers, carbon market prices are not high enough to cover the cost of implementing a new practice, and they could be less than what you could receive from some federal government conservation programs like Environmental Quality Incentives Program and also Partners for Conservation.

But some markets allow farmers to stack these carbon payments with government program payments to make practice adoption more affordable.

10. How do I know what carbon market is right for me and where can I get more information?

It just depends on your goals and your own specific farming operation and practices that you’re already doing on those fields. We recommend that any carbon market that you’re looking into, review their website, reach out for any additional resources.

The Illinois Sustainable Ag Partnership, Illinois Soybean Association, AFT and others have generated some really good resources that take an honest broker approach to looking at those different markets. Review several of those resources and compare which one might be right for you.

I think in the future, Illinois Sustainable Ag Partnership is really looking at ways that we can take this to the next level. And how can we provide farmers and farm advisors with an incentive directory tool where we can ask a few questions or you can answer a few questions, and really start to narrow down the programs that you might be eligible for.

For more information about the guidebook, visit https://tinyurl.com/3x4dhaea.