As carbon markets continue to expand, the opportunities for growers are increasing too. In this blog, we’re covering the basics of carbon markets, credits, insets and offsets to help make sense of how this growth can improve a grower’s ROI and increase on-farm sustainability.
With expertise provided by Kaitlin Fitzgerald, VP of Sustainability at Sound.
Carbon credits have come a long way since the Kyoto Protocol established the first international carbon market in 1997. Today, the global market for voluntary carbon offsets is valued at over $2 billion. With estimates that agriculture accounts for about 11% of US greenhouse gas emissions, increasing attention is being paid to the opportunities for carbon sequestration within the industry.
Carbon markets offer growers a chance to increase profit with new revenue streams by implementing practices that not only reduce or remove greenhouse gases but also improve soil health and on-farm sustainability. Whether growers are interested in generating carbon credits or have been in the market for years, carbon markets continue to present new opportunities worth considering to growers.
Carbon Offsets vs. Carbon Insets
Capturing or reducing the amount of greenhouse gases in the atmosphere is easier for some industries than others and is the principle at the heart of carbon offsets. Organizations can essentially pay to support carbon capture initiatives outside their own industry without directly reducing their own emissions. This helps organizations that can capture carbon or reduce emissions to receive compensation for those practices, which might otherwise not be particularly profitable. In the agricultural industry, implementing sustainable farming practices can drive outcomes that can be sold as a carbon offset.
With carbon insetting, on the other hand, organizations find opportunities to reduce emissions within their own supply chains. What practices and reductions an organization will find depends on the industry, but could include supporting the implementation of regenerative practices on land from which the organization sources inputs or investing in cleaner vehicles. Insets can address either direct and indirect emissions, and can include either carbon sequestration or greenhouse gas avoidance practices.
“With the increase in net zero commitments coming from the food and agriculture industry, we are seeing a greater push towards supply chain mitigations,” says Kaitlin Fitzgerald, Vice President of Sustainability at Sound. “At the end of the day though, it’s the same types of in-field practices underpinning both insets and offsets.”
Carbon Credit: Permits that allow an organization to emit a set amount of greenhouse gases and can be purchased or traded between organizations that emit less than their allotted amount and those that emit more.
Carbon Offset: Organizations purchase a credit from an outside industry or company to either cover or cancel out the emissions associated with the regular operation of their business.
Carbon Inset: Reductions made to emissions within an organization’s own supply chain.
One of the challenges facing the carbon market is the question of permanence. Accrediting organizations generally require the emissions associated with a sequestration project to remain stored for as much as 100 years to qualify as a high-integrity carbon credit. For example, planting a forest may store a great deal of carbon, but it is less valuable to a buyer if the forest burns down after 20 years. High-integrity carbon credits are associated not only with long-term carbon removal but also rigorous validation and transparency, which will impact the value of the credits.
Agricultural related sequestration removes or captures carbon already in the atmosphere through practices like tree planting, no-till, or cover cropping. Emission avoidance credits, on the other hand, simply reduce or avoid emitting CO2 in the first place. Removal and avoidance offsets are often part of the same protocol or project type.
“So much of the rhetoric today is around carbon sinks and sequestration,” says Kaitlin. “More and more though, the people I talk to are excited about the opportunity for avoidance credits because they don’t run into the same challenges around permanence that sequestration efforts often brush up against. If you till a field that had been no-till, you release carbon, but if you reduce nitrogen, it’s a one-and-done and you don’t have to worry about permanence. We ultimately need both pathways to meet our greenhouse gas goals.”
Practices and Strategies to Reduce or Remove GHG Emissions
Growers can play an important role in carbon reduction, generating both carbon offsets and insets for either carbon emission reduction or removal credits based on the structure of the programs they are engaged with. Having these reductions certified is a different matter altogether, which we will cover later, but below is a list of activities that may qualify as carbon credits.
1. Nitrogen Use Efficiency: Nitrogen fertilizers are connected to nitrous oxide emissions, a greenhouse gas nearly 300 times as potent as CO2. When carried into surface water through runoff, fertilizers contribute to harmful algae blooms. When growers reduce the amount of nitrogen they apply to their fields, they avoid contributing additional greenhouse gasses to the atmosphere. At present, nitrogen reduction is often not recognized as a carbon reduction practice, but it is one way growers could finance and monetize a shift in their practices.
2. Reduce fuel usage: By finding ways to reduce the amount of fuel they use on their farm growers can shrink their greenhouse gas emissions. This could include allowing corn to dry down in the field for longer, finding ways to reduce equipment passes in the field, or upgrading to more fuel-efficient machinery.
3. Digesters: The decomposition of organic plant and animal products produces methane, a greenhouse gas with 80 times more warming power than CO2 in its first 20 years in the atmosphere. On-farm digesters can capture this methane to produce electricity and leftover digestate can be used as a nutrient source for a growers fields, much like compost or manure.
1. Cover crops: Whether cash or cover, all crops capture CO2 from the atmosphere and convert it into complex sugars and starches that are stored in their leaves, stems and roots. By planting cover crops in the off season, growers sequester carbon year round. As an additional benefit, once the cover crop is ended, it can be composted to improve soil health.
2. Reduced tillage: Because healthy soils are rich in organic matter, they can act as reservoirs for carbon storage. Immediately after tilling, some soil carbon is released into the atmosphere as CO2, and aeration and erosion also increase CO2 emissions and soil carbon loss, which negatively impacts both the atmosphere and the soil. Conservation or no-till practices reduce the loss of soil carbon and benefit both soil health and carbon removal efforts.
3. Diverse crop rotation: By creating an environment that can sustain a wide variety of healthy soil organisms, some studies have shown that systems with diverse crop rotations have higher soil carbon levels than in monocropped fields. Crop rotation can also increase nutrient cycling and decrease plant diseases and pest insects.
Growers who want to implement some of these practices and enter into the carbon market should look for markets like those run by Truterra, Bayer, and Indigo Ag that will fit their needs. Depending on the specifics of a growers operation, different programs may have different requirements or payouts. Some organizations like Soil and Water Outcomes Fund will even offer payment for other ecosystem services beyond carbon sequestration, like water quality improvement or even increased biodiversity.
In the graphic above, nitrogen is shown escaping from a standard corn field as nitrate in water runoff and greenhouse gasses. But just as greenhouse gasses escape traditional agricultural systems in many ways, certain practices can also be used to sequester carbon and keep it in the field.
Challenges Facing Carbon Markets
Even as the global market for carbon offsets has skyrocketed in recent years, there are still some roadblocks that can make carbon markets a difficult tool for growers to utilize and slow adoption throughout the industry.
First, the industry lacks standardization. Currently, different entities and carbon credit programs have different methods, protocols, and requirements to validate and track carbon credits. While that can allow growers to find the program that works best for them, even on a field-by-field basis, greater standardization would provide growers and credit purchasers with confidence that credits are providing the declared GHG reduction or removal.
There are also costs associated with calculating and verifying credits. Calculating the CO2 equivalent removed or reduced by particular practices and then verifying the existence and permanence of carbon credit practices takes time and effort, especially when new GHG-reducing practices are accepted as credit generators. This verification needs to be done by a third party — not the grower and not the entity purchasing the credit.
Finally, the current price of carbon itself presents a roadblock.
“This is a shortcoming people often come back to,” says Kaitlin. “The value of carbon credits in the agriculture industry is between $20 and $40 today, but some climate economists estimate prices need to increase to as much as $100 per ton of CO2eq to really move the needle.”
Kaitlin says a related issue is how to involve growers who have already adopted climate-smart practices in carbon markets. For carbon credits to be considered high-quality, they need to meet an “additionality” threshold, meaning the practices would not have been adopted if not for the existence of a carbon market. The idea is that if companies purchase carbon reduction credits in lieu of reducing their own emissions but the offset would have occurred anyway, the company isn’t actually reducing their own emissions.
Growers who were early adopters may not be eligible for carbon credit payments, but Kaitlin says she’d like to see those growers involved in knowledge sharing and receiving some kind of recognition for the values they’ve modeled.
“They took on a risk when it was harder,” says Kaitlin. “They may be succeeding now, but the growers who are just adopting these practices benefitted from those early adopters.”
Growers are dedicated stewards of the land who work hard to pass on healthy soils and sustainable operations to the next generation, but farming is also a business, and Kaitlin says it’s important not to overlook that. Ultimately, carbon markets aim to connect the environmental and financial for growers.